Scrap 1.28% additional interest on armed forces insurance deposits: RBI

MUMBAI: The Reserve Bank today directed banks to withdraw the additional interest rate of 1.28 per cent that they pay against armed forces' insurance deposits.

"In line with complete deregulation of interest rates on deposits, it has been decided to withdraw the prescription of offering additional interest of 1.28 per cent per annum on the deposits of AGID, NGIF and AFGIS," RBI said in a notification.

Accordingly, interest rates on such deposits should be at par with other deposits of similar maturity and amount, it added.

As per extant guidelines, public sector banks are permitted to pay additional interest of 1.28 per cent per annum, over and above the normal rate of interest, on term deposits for two years and above of Army Group Insurance Directorate (AGID), Naval Group Insurance Fund (NGIF) and Air-Force Group Insurance Society (AFGIS).

The additional interest rate is permitted on the condition that such deposits are not in any way linked with payment of insurance premia by the bank, the notification said.

RBI said the new guidelines will be applicable at the time of accepting fresh deposits or renewal of existing deposits.

"In other words, existing term deposits of AGID, NGIF and AFGIS may be continued till maturity," it added.