Deposit & Savings Regulation: The Complete Timeline

For four decades after nationalisation, the RBI told banks what interest rate to pay on every type of deposit. Savings accounts paid 4%. Term deposits had prescribed rates by tenor. Banks couldn't offer more; they couldn't offer less. The system was simple, uniform, and stifling — it treated a deposit at State Bank of India the same as a deposit at a loss-making urban co-operative bank, and gave neither any reason to compete for the depositor's money.

The deregulation came in stages. Term deposit rates were freed first, in the 1990s. The minimum tenor was cut from 46 days to 15 days to 7 days. Savings bank interest — the last administered rate — was finally deregulated on October 25, 2011, allowing banks to set their own rates for the first time. On the lending side, the Benchmark Prime Lending Rate gave way to the Base Rate in 2010, then to MCLR in 2016, then to the External Benchmark Lending Rate in 2019 — each attempt trying to make bank interest rates actually respond to the RBI's monetary policy signals.

3,169 notifications govern this domain — the largest single topic extraction so far. Of these, 1,369 are unique to deposits and not covered by any prior topic article. The framework touches every entity type, every account type, and every customer from the farmer's Jan Dhan account to the NRI's FCNR(B) deposit.

Also in this series:
- The Interest Rate Chain: From Repo to Your Savings Account
- Unclaimed Deposits and the DEAF Fund
- NRI Accounts & Deposits (cross-reference — FEMA governs NRI deposit regulations)
- Co-operative Banks (UCB deposit norms)
- Regional Rural Banks (RRB deposit norms)
- The Rs 1 Lakh Line — why deposit insurance stayed at Rs 1 lakh for 27 years, and what finally changed

The Central Document: Master Direction on Interest Rate on Deposits

The Master Direction on Interest Rate on Deposits (Master Direction - Reserve Bank of India (Interest) (26 downstream refs, issued March 3, 2016, updated through June 7, 2024) is the single authoritative reference for deposit pricing rules across all banks.

Current Accounts: Zero Interest

"No interest shall be paid on deposits held in current accounts." (RBI_10296, Section 5)

One exception — deceased depositor's balance: "Balances lying in current account standing in the name of a deceased individual depositor or sole proprietorship concern shall attract interest from the date of death till the date of repayment at the rate applicable to savings deposit."

Savings Accounts: Deregulated with a Floor

"A uniform interest rate shall be set on balance up to Rupees one lakh, irrespective of the amount in the account within this limit." (RBI_10296, Section 6)

"Differential rates of interest may be provided for any end-of-day savings bank balance exceeding Rupees one lakh." Master Direction - Reserve Bank of India (Interest Rate on D...

Below Rs 1 lakh: one uniform rate for all. Above Rs 1 lakh: banks can differentiate. This is why Kotak Mahindra Bank can offer 6% on large savings balances while SBI pays 2.7% on all balances — the deregulation applies only above the Rs 1 lakh threshold. The RBI laid the groundwork with a public discussion paper in April 2011 (RBI Press Release, April 28, 2011) before deregulating six months later in the October 2011 monetary policy review (RBI Press Release, October 25, 2011) — ending four decades of administered savings rates.

Term Deposits: 7-Day Minimum, No Negotiation

"Minimum tenor of the deposit offered shall be seven days." (RBI_10296, Section 7)

"The rates shall be uniform across all branches and for all customers and there shall be no discrimination in the matter of interest paid on the deposits." (RBI_10296, Section 4)

"The rates shall not be subject to negotiation between the depositors and the bank." Master Direction - Reserve Bank of India (Interest Rate on D...

Except for bulk deposits: "Differential interest rate shall be offered only on bulk deposits."

Bulk deposit thresholds:
- Scheduled Commercial Banks and SFBs: Rs 3 crore and above
- Regional Rural Banks and LABs: Rs 1 crore and above

Premature Withdrawal

"All term deposits accepted from individuals (held singly or jointly) for amount of Rupees one crore and below shall have premature-withdrawal-facility." (RBI_10296, Section 7)

Penalty: "Interest shall be paid at the rate applicable to the amount and period for which the deposit remained with the bank and not at the contracted rate."

Senior Citizens

"Scheduled Commercial Banks shall, at their discretion, formulate term deposit schemes specifically for resident Indian senior citizens, offering higher and fixed rates of interest as compared to normal deposits of any size." (RBI_10296, Section 8(b))

This provision was first introduced in the April 2001 monetary policy (Monetary and Credit Policy for the year 2001–2002): "It has been decided to permit banks to formulate, with the approval of their Boards of Directors, fixed deposit schemes specifically for senior citizens offering higher and fixed rates of interest."

Staff Additional Interest

"Additional interest of one per cent per annum, over and above the rate of interest on savings or a term deposit of bank's staff." (RBI_10296, Section 8(a))

Prohibitions: No Gifts, No Brokerage, No Negotiation

"Scheduled commercial banks shall not pay any remuneration or fees or commission or brokerage or incentives on deposits in any form." (RBI_10296, Section 28)

"Shall not offer prize/lottery/free trips or any other initiative having element of chance for mobilizing deposits. However, inexpensive gifts costing not more than Rupees 250." Master Direction - Reserve Bank of India (Interest Rate on D...

NRI Deposits

"Minimum tenor of NRE term deposits shall be one year and that of NRO term deposits shall be seven days." (RBI_10296, Section 15)

"Interest rates on NRE/NRO deposits shall not be higher than those offered by the bank on comparable domestic rupee term deposits." Master Direction - Reserve Bank of India (Interest Rate on D...

FCNR(B) deposits: tenors from 1 to 5 years only — "no bank shall accept or renew FCNR(B) deposits over five years."

The Lending Rate Chain: BPLR → Base Rate → MCLR → EBLR

Base Rate (July 2010)

The Base Rate guidelines RBI/2009-10/390 (16 downstream refs) replaced the BPLR system:

"The Base Rate system will replace the BPLR system with effect from July 1, 2010." Guidelines on the Base Rate

"The BPLR system, introduced in 2003, fell short of its original objective of bringing transparency to lending rates. This was mainly because under the BPLR system, banks could lend below BPLR." Guidelines on the Base Rate

The key change: "Since the Base Rate will be the minimum rate for all loans, banks are not permitted to resort to any lending below the Base Rate."

MCLR (April 2016)

The Interest Rates on Advances Directions 2025 (Reserve Bank of India (Commercial Banks – Interest) (12 downstream refs) codifies the current framework:

"All floating rate rupee loans sanctioned and renewed w.e.f. April 1, 2016 shall be priced with reference to the Marginal Cost of Funds based Lending Rate (MCLR)." (RBI_13149, Section 15)

MCLR components: "Marginal cost of funds; Negative carry on account of CRR; Operating costs; Tenor premium."

External Benchmark (2019)

"All floating rate personal or retail loans (housing, auto, etc.), and floating rate loans extended by banks to MSMEs shall be benchmarked to an External Benchmark Rate." (RBI_13149, Section 25)

External benchmarks: RBI Repo Rate, 3-month/6-month T-Bill yields (FBIL), or any other FBIL-published benchmark.

Spread protection: "The spread charged to an existing borrower shall not be increased except on account of deterioration in the credit risk profile of the customer."

Monthly rests: "Interest shall be charged on all advances at monthly rests." With a farmer-protection provision: "Total interest debited in short term loan should not exceed the principal amount for advances to small and marginal farmers."

Unclaimed Deposits and the DEAF Fund

Inoperative Account Classification: 2 Years

"A savings as well as current account should be treated as inoperative/dormant if there are no transactions in the account for over a period of two years." Unclaimed Deposits and Inoperative/ Dormant Accounts in UCBs

"There should not be any charge for activation of inoperative account." Unclaimed Deposits and Inoperative/ Dormant Accounts in UCBs

DEAF: 10-Year Transfer Rule

The Depositor Education and Awareness Fund Scheme RBI/2013-14/614 (13 downstream refs):

"Banks shall transfer to the Fund the amounts becoming due in each calendar month — proceeds of the inoperative accounts and balances remaining unclaimed for ten years or more." The Depositor Education and Awareness Fund Scheme, 2014 –Sec...

Refund: "In case of demand from a customer whose unclaimed amount had been transferred to Fund, banks shall repay the customer and lodge a claim for refund from the Fund for an equivalent amount."

The Empathetic View (December 2024)

The revised instructions RBI/2024-25/91 (15 downstream refs) addressed a human problem — Jan Dhan accounts of underprivileged beneficiaries being frozen for KYC non-compliance:

"Instances have been observed where the accounts of such beneficiaries have been frozen due to other factors such as pending updation/periodic updation of KYC. Since these accounts mostly pertain to the people from the underprivileged sections of the society, the banks may facilitate the process of activation by taking an empathetic view." Inoperative Accounts / Unclaimed Deposits in banks

DICGC: The Rs 5 Lakh Safety Net

The insurance limit stood at Rs 1 lakh from 1993 until February 4, 2020, when DICGC raised it to Rs 5 lakh per depositor per bank (RBI Press Release, February 4, 2020). The timing was not coincidental — the PMC Bank crisis of September 2019 had exposed exactly how inadequate the old limit was for middle-class depositors.

The risk weight circular RBI/2022-23/113 (23 downstream refs) set the prudential treatment:

"The risk weight of zero percent shall be applicable in respect of exposures guaranteed under any existing or future schemes launched by CGTMSE, CRGFTLIH and NCGTC." Review of Prudential Norms – Risk Weights for Exposures guar...

Settlement: "Any future scheme shall provide for settlement of eligible guaranteed claims within thirty days from the date of lodgement, and the lodgement shall be permitted within sixty days from the date of default."

Certificates of Deposit

The CD Master Direction RBI/2021-22/79 (25 downstream refs):

"CDs shall be issued in minimum denomination of Rs.5 lakh and in multiples of Rs.5 lakh thereafter." Master Direction – Reserve Bank of India (Certificate of Dep...

Tenor: 7 days minimum, 1 year maximum. Buyback only after 7 days. No grace period for repayment. No loans against CDs unless specifically permitted.

UCB Lock-In Deposits: The Crackdown

Some UCBs had created deposit products with lock-in periods and premium rates that violated the non-discrimination principle. RBI_3938 (November 2007) (11 downstream refs) shut them down:

"The special schemes, with lock-in periods and other features, which have been floated by some banks, are not in conformity with our instructions. Banks that have floated such deposit schemes are advised to discontinue the schemes with immediate effect." UCBs – Deposit Schemes with lock-in period

The Deregulation Timeline

Key Thresholds Reference

Sub-Topic Distribution

Last updated: April 2026