Banks to pay bond investors 8% for late interest credit

The Reserve Bank of India has asked banks to compensate investors for delayed interest payment on Relief or Saving Bonds and pay 8% per annum for the financial loss incurred by investors. The move is aimed at making banks more prompt in paying interest to investors. Earlier, RBI had asked banks to compensate for the delay in interest payment on such bonds at their respective savings bank rates, irrespective of the amount.

However, the move to fix a uniform rate of 8% for all banks comes in the context of different banks offering different rates on savings account after it was deregulated in October 2011. RBI said that the move is aimed at "avoiding ambiguity and variation in compensation rates across different agency banks." Banks like YES Bank and Kotak Mahindra are offering 6% while State Bank of India, HDFC Bank, ICICI Bank continue to pay 4% on savings account. The compensation of 8% is higher than savings rates offered by any bank now.

In a letter to all commercial banks that are operating as agency banks for Relief Bonds, RBI said, "an agency bank shall compensate an investor in Relief/Savings bonds, for the financial loss due to late receipt/delayed credit of interest warrants/maturity value, at a fixed rate of 8% per annum."

Investors are paid interest on these bonds through interest warrants by registered post or the bank directly credits the amount in the investor's bank account. Banks will now ensure that the interest is credited on the due date. RBI's instructions follow the deregulation of interest rate on savings bank accounts in October last year.