MUMBAI: The Reserve Bank of India (RBI) has tightened the rules governing deposit interest rates, introducing a framework that promises greater transparency for retail fixed deposit (FD) customers while allowing banks more flexibility in pricing bulk deposits under defined regulatory principles.
The revised directions, which come into force on October 1, follow weeks of discussion over bulk deposit pricing after market attention centred on aggressive bulk deposit mobilisation by banks, including HDFC Bank, and the regulatory issues surrounding differentiated interest rates.
The new framework appears to strike a balance between protecting retail depositors through greater transparency and giving banks the flexibility needed to manage liquidity efficiently.
For retail customers, the changes are aimed squarely at ensuring fairness and consistency. Banks will have to offer identical interest rates across all branches for deposits of the same amount accepted on the same day. Customers opening similar fixed deposits at different branches of the same bank can no longer be offered different rates.
Disclosure strengthened
The RBI has also strengthened disclosure requirements. Banks must publish their schedule of deposit interest rates on their websites in advance, and interest paid on deposits must strictly conform to the published rates.
For bulk deposits, however, the central bank has adopted a more flexible approach.
Banks will now be permitted to offer differential interest rates on bulk deposits after considering the run-off rates prescribed under the Liquidity Coverage Ratio (LCR) framework. The same flexibility has also been extended to rupee deposits accepted from non-residents.
To improve transparency in this segment as well, banks must upload the applicable bulk deposit interest rates on their websites by 10:00 am on every business day, with a grace period up to 10:10 am.
The revised directions apply to commercial banks, small finance banks, regional rural banks, local area banks, payment banks and urban cooperative banks.
Bulk deposits
The regulatory overhaul comes against the backdrop of heightened competition among banks for deposits amid sustained credit growth and relatively slower deposit mobilisation. The issue came into sharper focus after recent market discussions surrounding bulk deposit campaigns and the treatment of large-ticket deposits under liquidity regulations.
While the RBI has not directed banks to raise or lower deposit rates, the new framework standardises how those rates are determined, disclosed and offered. Deposit pricing will continue to depend on individual banks' liquidity position, funding requirements and market conditions.
Separately, the RBI is also examining broader reforms to interest-rate practices across lenders, including NBFCs, with the objective of promoting greater transparency and consistency in loan pricing. Although those proposals relate to lending rather than deposits, together they signal the central bank's broader push towards a more transparent and rule-based interest-rate framework.
