Interest Expended
The following items are included under this head:
(a) Interest on Deposits: This includes interest paid/ payable on all types of deposits including deposits from banks and other institutions. Usually, the rates of term deposits of banks are amended from time to time by the ALCO or the Board. The auditor must verify the system in place to give effect to these changes in the CBS system of the Bank.
(b) Interest on Reserve Bank of India/ Inter–Bank Borrowings: This includes interest/ discount on all borrowings and refinance from the RBI and other banks.
(c) Others: This includes discount/ interest on all borrowings/ refinance from financial institutions. All other payments like interest on participation certificates, penal interest paid, etc. may also be included here.
RBI, vide its circular no. DBOD.Dir.BC.42/13.03.00/2011-12 dated October 25, 2011 (as amended by RBI’s Circular No.
DBOD.Dir.BC.75/13.03.00/2011-12 dated January 25, 2012), has deregulated the savings bank deposit interest rate. In other words, the banks are now free to determine their savings bank deposit interest rate. The auditor should verify that prior approval of the Board/Asset Liability Management Committee (if powers are delegated by the Board) has been obtained by a bank while fixing interest rates on such deposits.
11.17 Further, vide its Circular No. DBOD.Dir.BC.64/13.03.00/2011-12 dated December 16, 2011; RBI has also deregulated the interest rates on Non Resident (External) Rupee Deposits and Ordinary Non-Resident (NRO) Accounts as follows:
Banks are free to determine their interest rates on both savings deposits and term deposits of maturity of one year and above under Non-Resident (External) Rupee (NRE) Deposit accounts and savings deposits under Ordinary Non-Resident (NRO) Accounts. However, interest rates offered by banks on NRE and NRO deposits cannot be higher than those offered by them on comparable domestic rupee deposits.
Prior approval of the Board/Asset Liability Management Committee (if powers are delegated by the Board) needs to be obtained by a bank while fixing interest rates on such deposits. At any point of time, individual banks need to offer uniform rates at all their branches.
The revised deposit rates apply only to fresh deposits and on renewal of maturing deposits.
Banks also need to closely monitor their external liability arising on account of such deregulation and ensure asset-liability compatibility from systemic risk point of view.
Attention is also drawn to RBI Master circular no. DBR.No.Dir.BC.8/13.03.00/2015-16 dated 1st July 2015, by which RBI has consolidated instructions pertaining to FCNR(B) deposits by Banks. Specific consideration should be given to the ceiling on interest rates, 360 days to a year basis for interest payment, rounding off of interest etc. Recurring Deposits should not be accepted under the FCNR (B) Scheme. The interest on FCNR (B) deposits should be calculated and paid at intervals of 180 days each and thereafter for the remaining actual number of days. However, the depositor will have the option to receive the interest on maturity with compounding effect.