The State Bank of India chief wants the minimum tenure of fixed deposits cut to three days so that companies find it worthwhile to park short-term surplus funds with banks. He also wants 2 per cent interest paid on their current accounts.

“There are so many rigidities in banking regulation. Why should the minimum period of fixed deposits be seven days?” , asked Pratip Chaudhuri, Chairman, SBI.

With the minimum tenure of fixed deposits at seven days, banks are losing out on the opportunity to tap the surplus funds of companies. Firms prefer parking surplus funds with the liquid/money market schemes of mutual funds because of the flexibility of no lock-in period and redemption in 24 hours.

“Earlier the minimum tenure of FDs used to be 45 days, now it is seven days. In sharp contrast, liquid schemes of mutual funds offer redemption in 24 hours,” Chaudhuri said.

The SBI chief observed that companies such as Hindustan Unilever, Wipro, ITC, or Hero Honda are sitting on piles of cash. Many companies and charities have surplus funds from time to time. “So, why should they (companies with surplus funds) go to a bank when there is the minimum seven days lock-in condition? They would rather go to a liquid scheme of a mutual fund,” he said.

Liquid/money market schemes of mutual funds invest in financial instruments such as treasury bills, certificate of deposit and commercial paper, which have a duration of up to one year.

As at February-end, mutual funds had Rs 204,308 crore worth of assets under management under liquid/money market schemes. A portion of these funds could come the banks’ way if the FD tenure is reduced to three days, say bankers.

Chaudhuri has flagged the issue for shortening the tenure of FDs at a time when the banking system is facing a slowdown in deposit accretion. Year-on-year, deposit growth in the banking system has slowed to 11 per cent.

Current account

Banks should be allowed to pay at least 2 per cent interest on the current account, said the SBI chief. At present, current accounts do not get any interest.

“Now, for example, if your company has surplus cash, you won’t go to the bank because the FD lock-in is seven days and current account gives you nothing.

“So, many businessmen just leave cash in their drawer. If 2 per cent interest is paid on current account, there would be some interest in depositing money in the account.”

Even government departments would benefit. They are keeping their money all the time in the current account. So, they will also earn some interest.

comment COMMENT NOW