3 New Rules By RBI

The Reserve Bank of India -- India's banking regulator -- makes rules and regulations that to safeguard interests of the deposit holders. All banks have to comply with these rules.

RBI announced three new rules on Wednesday that made operating a bank account for children or minors simple. It also enforced abolishing of a prepayment penalty on home loans.

Here are things you should know:

1.       Minor account holders: The RBI allowed minors over the age of 10 to independently open and manage savings bank accounts. They can now also use banking facilities like ATMs and cheque books without requiring guardian support. The earlier rule – dated December 1976 – stated that a minor can only open an account with the mother as the guardian. This meant that the account’ operations needed the guardian’s approval. The RBI said that banks are allowed to fix limits to reduce credit risks to the bank. This could mean fixing a limit on the maximum amount that can be withdrawn or transferred independently. It could also be a limit on the age or the documents required.

2.       Minimum-balance penalty: Many banks insist on a required minimum balance in ordinary savings accounts. If this limit was not met, penalty charges were enforced. The RBI has said that in case the said bank account is inoperative, banks should not levy a penalty fee. Banks should only limit the services available to the account holder. These services will be restored when the balance is restored to the required level.

3.       Prepayment of floating-rate loans: In a floating-rate loan, the interest rate charged is not fixed. It changes as and when market rates vary. Unlike a fixed-rate loan, the floating-rate loan was not allowed to be paid off before maturity. The borrower had to pay a penalty sum. This rule has now been changed to protect consumers.