Module: | KYC, NPAs, Advances & Investment Valuations
Q190: Calculate the applicable compensation interest rates for the following two independent scenarios based on RBI Directions:
Scenario A: A customer requests a duplicate demand draft of ₹4,000. The bank delays the issuance by 20 days, breaching the mandated fortnight timeline.
Scenario B: A domestic bill lodged by a customer faces delayed collection by the bank.
(Assume the prevailing Savings Bank interest rate is 3.50% p.a., and the applicable Term Deposit rate is 6.50% p.a.).
What are the exact penal interest rates the bank must pay to the customers for Scenario A and Scenario B, respectively?
Scenario B: A domestic bill lodged by a customer faces delayed collection by the bank.
(Assume the prevailing Savings Bank interest rate is 3.50% p.a., and the applicable Term Deposit rate is 6.50% p.a.).
What are the exact penal interest rates the bank must pay to the customers for Scenario A and Scenario B, respectively?
✅ Correct Answer: B
The correct answer is B. The calculation requires applying two distinct penal rate frameworks established by the regulator.
For Scenario A, guidelines state that duplicate demand drafts must be issued within a maximum of a fortnight (14 days). Any delay beyond this timeline attracts compensation payable strictly at the applicable term deposit rate.
Since the Term Deposit rate provided is 6.50% p.a., the penalty for the delayed draft is exactly 6.50% p.a. For Scenario B, the rules governing the delayed collection of domestic bills mandate a compensation rate mathematically fixed at 2 percent per annum ABOVE the prevailing Savings Bank account interest rate.
With the Savings Bank rate given as 3.50% p.a., the exact penalty rate formula becomes 3.50% + 2.00%, equalling 5.50% p.a. Therefore, the respective required rates are 6.50% p.a. and 5.50% p.a.
For Scenario A, guidelines state that duplicate demand drafts must be issued within a maximum of a fortnight (14 days). Any delay beyond this timeline attracts compensation payable strictly at the applicable term deposit rate.
Since the Term Deposit rate provided is 6.50% p.a., the penalty for the delayed draft is exactly 6.50% p.a. For Scenario B, the rules governing the delayed collection of domestic bills mandate a compensation rate mathematically fixed at 2 percent per annum ABOVE the prevailing Savings Bank account interest rate.
With the Savings Bank rate given as 3.50% p.a., the exact penalty rate formula becomes 3.50% + 2.00%, equalling 5.50% p.a. Therefore, the respective required rates are 6.50% p.a. and 5.50% p.a.