The RBI has laid down a directive to banks to calculate interest on savings bank accounts on a daily basis with effect from 1st April 2010. This is sure to bring in smiles on faces of savings account holders as their earnings from such accounts are going to increase.

‘‘We advise that payment of interest on savings accounts may be made by banks on a daily product basis with effect from April 1," a notification from the RBI said.

The new move will enable savings account holders to earn more interest on their deposits than they used to earn earlier. Currently banks calculate interest on the lowest available balance in customer's account from 11th to last day of a particular month. So if one withdraws money from his account on the last day of the month he misses interest on that money for the whole month even though the money was in his account for the first 29 days of the month. But with the new system he will get interest for the 29 days during which his money was there in the account.

Before coming out with this notification, RBI had referred to the matter with the Indian Banker's Association (IBA). The IBA had said tat this process would be possible only if adequate computerization facility in inculcated in banking procedures. Seeing the satisfactory level of computerization the RBI then decided to go ahead with the directive.

‘‘Payment of interest on savings bank accounts by scheduled commercial banks (SCBs) would be calculated on a daily product basis with effect from April 1, 2010," the Reserve Bank said.

The move has been met with several criticisms from the part of the banks. Leading banks like SBI have said that the payment of interest on savings deposits on a daily basis is likely to have an impact up to 25 basis points on margins of SBI.

However, with the incorporation of base rate system also from 1st April 2010 it is expected that average yield on advances for banks would increase and thus might counterbalance the decline in margins.