Money & Banking

Banks told to keep variation in deposit rates ‘minimal’

Our Bureau Mumbai | Updated on November 16, 2017 Published on August 14, 2012




The Reserve Bank of India wants banks to ensure that the variation in interest rates on bulk and retail term deposits of same maturity is “minimal.”

In other words, the interest rate differential between single term deposits of Rs 15 lakh and above (bulk deposits) and retail term deposits (deposits less than Rs 15 lakh) for corresponding maturities should be minimal.

However, the RBI has not specified what the ‘minimal’ variation in interest rates on bulk and retail deposits can be.

The RBI observed that currently there are wide variations in the interest rates offered by banks on bulk and retail term deposits of corresponding maturities. Further, banks are offering significantly different rates on deposits with very little difference in maturities.

The RBI attributed the abovementioned trend to inadequate liquidity management system and inadequate pricing methodologies.

The Reserve Bank had earlier stipulated that banks should, among other things, not discriminate in the matter of interest rate paid on deposits, except in respect of fixed deposit schemes specifically meant for resident Indian senior citizens and single term deposits of Rs 15 lakh and above.

According to T.S.Srinivasan, General Manager, Indian Overseas Bank, depending on the liquidity situation in the market, banks quote bulk deposits rates either at a premium or discount to the retail deposit rates.

Due to improvement in the liquidity situation over the last 10 days, IOB’s bulk deposit rates are at a slight discount to the retail deposit rates, he added.

Srinivisan explained that the latest RBI directive will ensure that banks do not bulk up their balance sheets towards the close of a financial year by quoting higher deposit rates on short-term bulk deposits. Else, they could be questioned by the RBI at the time of the annual financial inspection.

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Published on August 14, 2012
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