In November 2010, the Reserve Bank of India released a discussion paper asking a question that should have been settled decades earlier: should banks be free to set their own savings account interest rates? For years, every bank in the country paid exactly the same rate on savings deposits — because the RBI told them to. The Discussion Paper on Deregulation of Savings Bank Deposit Rate (PR_24308) laid out the pros and cons. Eleven months later, the RBI acted. And yet, a decade and a half on, most banks still pay nearly identical rates. Why? Because the economics of deposit pricing are more constrained than the regulation ever was.
This article traces both sides of the deposit story: how the rate you earn gets determined, and what happens to the money if nobody comes to collect it.
See also: Deposit & Savings Regulation: The Complete Timeline | Unclaimed Deposits & the DEAF Fund
How does a bank decide what interest to pay you?
Until October 25, 2011, the answer was simple: the RBI decided. The savings account rate was administratively fixed. Then the Deregulation of Savings Bank Deposit Interest Rate circular RBI/2011-12/233 changed that. The RBI directed, invoking Section 35A of the Banking Regulation Act, 1949:
"It has been decided to deregulate the savings bank deposit interest rate with immediate effect. Accordingly, the following Guidelines will be effective from October 25, 2011: Banks are free to determine their savings bank deposit interest rate, subject to the following two conditions: First, each bank will have to offer a uniform interest rate on savings bank deposits up to Rs.1 lakh, irrespective of the amount in the account within this limit."
Two conditions, not one. The second required that for deposits above Rs 1 lakh, banks could offer differential rates — but could not discriminate between deposits of the same amount on the same date at any branch. The deregulation came with a uniformity safeguard built in. Why? Because without the Rs 1 lakh floor rule, banks could have offered zero interest to small depositors while competing only for high-value accounts. The regulator freed pricing but protected the retail depositor in the same stroke.
The current governing framework is the Reserve Bank of India (Commercial Banks -- Interest Rate on Deposits) Directions, 2025 (Reserve Bank of India (Commercial Banks – Interest), issued November 28, 2025, which consolidated and replaced the earlier Master Direction dated March 3, 2016. The same framework applies across entity types — see the UCB Directions (RBI_MD_13029), RRB Directions (RBI_MD_13054), SFB Directions (RBI_MD_13130), Payments Bank Directions (RBI_MD_13104), LAB Directions (RBI_MD_13079), and Rural Co-operative Banks Directions (RBI_MD_13003).
Why don't banks actually compete on savings rates?
If banks are free to set their own rates, why do almost all major commercial banks cluster around the same number? The answer lies in how banks fund themselves. A bank's deposit base is the raw material for its lending business. When the RBI cuts the repo rate, the bank's new borrowing cost drops — but the existing term deposits it has already locked in continue at the old rate until maturity. Banks cannot reprice those outstanding deposits, so the benefit of a rate cut flows to the lending side slowly and unevenly. The cost of funds lags the policy rate.
This matters because savings deposits are "core" funding — sticky, low-cost, and long-duration in practice even though they are technically demand deposits. Raising the savings rate by even 50 basis points costs a large bank hundreds of crores annually. Cutting it risks a depositor exodus to competitors. The result is coordination without collusion: banks watch each other and move in lockstep. The regulatory freedom exists on paper. The competitive equilibrium constrains it in practice.
The Interest Rate Chain: From Repo to Savings Account article traces the full transmission mechanism — from the Base Rate era through MCLR to the External Benchmark Lending Rate, and how each regime changed how quickly policy rate changes reached depositors and borrowers.
What is a "bulk deposit" and why does it get special treatment?
The 2025 Directions define a bulk deposit as a "Single Rupee term deposits of Rs 3 crore and above" for scheduled commercial banks and small finance banks. That threshold was not always Rs 3 crore. In February 2019, the RBI issued Review of Instructions on Bulk Deposit RBI/2018-19/128 (since withdrawn), revising the definition from the previous level and providing operational freedom to banks in raising these deposits. Before that revision, the threshold was Rs 1 crore for most bank types.
"As announced in the 'Statement on Developmental and Regulatory Policies' of the Sixth Bi-monthly Monetary Policy Statement dated February 07, 2019, it has been decided to revise the definition of 'bulk deposits' and provide operational freedom to banks in raising these deposits."
Why does the bulk deposit category exist at all? Because institutional depositors — corporates, trusts, government bodies — deposit large sums and have bargaining power that retail depositors lack. Allowing negotiated rates above the threshold lets banks compete for wholesale funding without distorting the retail deposit market. The 2025 Directions require banks to maintain a bulk deposit interest rate card in their Core Banking System, and specify that rates "shall not be subject to negotiation between the depositors and the bank" — meaning the rate card is the rate, disclosed in advance. The operational freedom is real, but it comes with a transparency obligation. Why? Because the RBI discovered that opaque negotiated rates were being used to channel funds between related parties at above-market returns.
Can senior citizens earn more on deposits?
Yes, and the authority is explicit. Paragraph 13 of the 2025 Deposit Directions (Reserve Bank of India (Commercial Banks – Interest) states:
"A bank may, at its 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."
The provision is permissive, not mandatory — "at its discretion." In practice, every major bank offers it, typically 25 to 50 basis points above the standard term deposit rate. The regulation also carves out an additional benefit for retired bank staff who are senior citizens: they can receive both the staff interest premium and the senior citizen premium simultaneously.
Why does the RBI embed social policy into deposit regulation? Because for millions of retired Indians, fixed deposit interest is not investment return — it is income. The senior citizen premium acknowledges that older depositors cannot wait for market cycles to improve, and that the dependency on interest income is structurally different from a corporate treasury optimising yield.
What happens to your deposit after ten years of inactivity?
This is where deposit regulation shifts from pricing to custody. If a deposit account has not been operated upon for ten years, the bank must transfer the balance — principal plus accrued interest — to the Depositor Education and Awareness Fund (DEAF), established by the RBI under Section 26A of the Banking Regulation Act, 1949.
The DEAF was created by the Depositor Education and Awareness Fund Scheme, 2014 RBI/2013-14/527 (since withdrawn), notified on March 21, 2014. Before the Scheme, unclaimed deposits sat on bank balance sheets indefinitely. Banks accrued interest income on funds that no depositor was using or monitoring. The legislative fix was Section 26A, which mandated:
"The amount to the credit of any account in India with any bank which has not been operated upon for a period of ten years or any deposit or any amount remaining unclaimed for more than ten years shall be credited to the Fund, within a period of three months from the expiry of the said period of ten years."
The Operational Guidelines RBI/2013-14/614 followed in May 2014, specifying that banks must remit amounts "in electronic form" through the E-Kuber portal to DEAF Account 161001006009. Each bank was allotted a unique "Bank DEAF Code" for operating the Fund. The RBI sought public comments on the Scheme (PR_30444) in February 2014 before finalising it.
Why did the RBI create DEAF instead of simply requiring banks to hold the deposits? Because the old system created a perverse incentive. Banks had no motivation to reunite depositors with their money. An unclaimed deposit on a bank's balance sheet is free funding — the depositor earns interest that stays within the bank's ecosystem, and the bank earns a spread on deployed funds that nobody is monitoring. Transferring the money to the RBI removed that incentive and created a centralised custodial structure.
Can you get your money back from DEAF?
Yes. At any time. The claim does not expire. The Scheme is explicit:
"The depositor would, however, be entitled to claim from the bank her deposit or any other unclaimed amount or operate her account after the expiry of ten years, even after such amount has been transferred to the Fund. The bank would be liable to pay the amount to the depositor/claimant and claim refund of such amount from the Fund."
This is the critical point that many depositors do not understand: the transfer to DEAF is custodial, not a forfeiture. The depositor's right to her money survives the transfer. The bank remains the point of contact — the depositor does not need to approach the RBI directly. The bank pays the depositor first, then claims reimbursement from the Fund. Why this structure? Because the RBI wanted to ensure that the depositor experience remains unchanged. A depositor should be able to walk into her branch, prove her identity, and receive her money — regardless of whether the balance currently sits in the bank's books or in the DEAF account in Mumbai.
How do you find an unclaimed deposit you did not know existed?
The Revised Instructions on Inoperative Accounts and Unclaimed Deposits RBI/2023-24/105 (since withdrawn), issued January 1, 2024, introduced two mechanisms. First, every deposit transferred to DEAF receives an Unclaimed Deposit Reference Number (UDRN) — "a unique number generated through Core Banking Solution (CBS) and assigned to each unclaimed account/deposit transferred to DEA Fund of RBI." The number is designed so that "the account holder or the bank branch where account is maintained, cannot be identified by any third party."
Second, banks must host details of unclaimed deposits on their websites — name, address (without pin code), and UDRN — updated at least monthly. The database must provide a search option enabling the public to search using name in combination with address. Banks without websites must make the list available at their branches.
Why does this matter? Because depositors cannot claim what they cannot find. Heirs often do not know their deceased relatives held accounts at particular banks. The searchable database requirement addresses this information gap directly. And when banks fail to maintain it, the RBI acts. In March 2026, HSBC was fined Rs 31.80 lakh (PR_62412) for non-compliance with the revised instructions on inoperative accounts and unclaimed deposits. The penalty was imposed under Section 47A(1)(c) of the Banking Regulation Act — the same provision used in every RBI penalty action.
The December 2024 reset: empathetic view for Jan Dhan accounts
The regulatory chain did not stop in 2024. On December 2, 2024, the RBI issued comprehensive revised instructions on Inoperative Accounts RBI/2024-25/91, with 15 downstream circulars referencing it within months. One provision stands out: banks were told to take an "empathetic view" toward Jan Dhan beneficiaries whose accounts were frozen for KYC non-compliance, and to organise special campaigns for facilitating activation of inoperative and frozen accounts.
Why the empathetic language? Because the regulatory tension between KYC compliance and financial inclusion reaches its sharpest point at dormant accounts. A Jan Dhan account that goes inoperative because the holder — often from an underprivileged section — could not complete periodic KYC updation is a failure of the inclusion mission that the account was opened to serve. The December 2024 circular explicitly acknowledged that tension and directed banks to resolve it through facilitation rather than enforcement.
The Rural Co-operative Banks Miscellaneous Directions, 2025 (Reserve Bank of India (Rural Co-operative Banks –) extended the same framework to co-operative banks, completing the regulatory chain from commercial banks through RRBs to the rural co-operative sector.
The two chains
Deposit regulation tells two stories that run in parallel. The interest rate chain — deregulation in 2011, the Base Rate and MCLR eras, the 2025 consolidated Directions (Reserve Bank of India (Commercial Banks – Interest) — governs what you earn. The unclaimed deposit chain — the 2008 circular on inoperative accounts (Unclaimed Deposits / Inoperative Accounts in bank), the 2014 DEAF Scheme RBI/2013-14/527 (since withdrawn — superseded by the December 2024 comprehensive reset), the 2024 UDRN and searchable database mandate RBI/2023-24/105 (since withdrawn — superseded by the December 2024 comprehensive reset), the December 2024 comprehensive reset RBI/2024-25/91 — governs what happens when you stop watching.
Both chains converge on a single regulatory principle: the depositor's money belongs to the depositor. The bank is a custodian, the DEAF is a custodian, and the regulatory architecture exists to make sure neither forgets that.
Last updated: April 2026