At the beginning of January 2016, the Reserve Bank of India started issuing Master Directions for all regulatory matters. The Reserve Bank of India, for every subject matter, under various Acts issued master directions that consolidated instructions on Various rules as well as regulations. RBI issues circulars to communicate any changes made in policies, rules, or regulations. Master directions were circulated due to the decision announced on the 4th bi-monthly monetary policy statement 2015- 16. The directions include foreign exchange transactions and banking issues and whenever it is necessary, they are suitably and simultaneously updated or they are updated when there is a change in the policy.
Reserve Bank of India has issued a notification about the review of instructions on interest on overdue domestic deposits on 2nd July 2021. The notification issued is directed to all local area banks, small finance banks, scheduled commercial banks that include RRBs and Primary urban co-operative banks, district central co-operative banks, and state co-operative banks.
The notification talks about the amendment in Section 9 (b) of Master Direction- Reserve Bank of India (co-operative banks- interest rate on deposits) directions, 2016[1] and the Master Direction- Reserve Bank of India (interest rate on deposit) directions, 2016[2] dated May 12, 2016, and March 3, 2016, respectively.
Section 9(b) previously stated that the amount that has been left unclaimed with the bank will attract interest rate as applicable to saving deposits if the term deposit matures and proceeds are unpaid. The amended section states that the unclaimed amount with the bank will attract the interest rate as applicable to a savings account or the contracted rate of interest on matured term deposit, whichever of the two is lower if the TD matures and proceeds are unpaid.
Similarly, section 9(b) which previously stated that the amount left unclaimed with the co-operative bank will attract interest rate as applicable to the savings deposit if the term deposit matures and proceeds are unpaid has been amended, and now this section states that the Unclaimed amount read the co-operative bank will it track the interest rate as applicable to savings account over the contracted interest rate on the mature term deposit, or whichever of them is lower, in case term deposit and proceeds are unpaid.
When a person opens a term deposit, which ranges from 1 to 60 months, whatever may be the length of person it requires and wants to invest their money, and then it is not for the entirety of the length of time which has been chosen. Your investment is deemed to be completed when the return deposit matures and the account is considered to be officially closed. In case the person has not taken any action after the maturity of the term deposit then the funds will be rolled into a new term deposit with the same length of time that has been previously chosen. The current interest rate of the bank will apply to the newly formed term deposit that is the new investment. A person can also choose a new term deposit, or withdraw some and invest the rest of the deposit, or completely withdraw the whole deposit and invest it somewhere else, or withdraw the deposit and open a high interest saving account when their term deposit reaches maturity. A person can also access their term deposit before maturity.
[1] Master Direction - Reserve Bank of India (Co-operative Banks - Interest Rate on Deposits) Directions, 2016, RBI/DCBR/2015-16/23, Master Direction DCBR.Dir.No.1/13.01.000/2015-16
[2] Master Direction - Reserve Bank of India (Interest Rate on Deposits) Directions, 2016 (Updated as on July 02, 2021), RBI/DBR/2015-16/19, Master Direction DBR. Dir. No.84/13.03.00/2015-16
