In a circular issued on March 3, the Reserve Bank of India (RBI) has asked banks to pay interest to savings account holders on quarterly basis or shorter duration. Currently, only Axis Bank and Yes Bank pay interest on their savings accounts on quarterly basis.
The move from half-yearly basis of interest payments to quarterly basis will increase the effective yield rate of savings accounts by 2.04 basis. Although this move will benefit crores of savings account holders, it will put an additional burden of Rs 500 crore on banks.
At present, while most banks offer 4% interest p.a. on savings accounts, Yes Bank and Kotak Mahindra Bank offer interest rates of up to 6% p.a. on their savings accounts. The RBI allowed the commercial banks to fix their savings account deposit rates in 2011. However, this freedom comes with a rider that the interest rate on savings account deposits of up to Rs 1 lakh would have to be uniform. The banks were allowed to offer differential rates to their customers on deposits of higher amount.