RBI asks banks to frame clear policy on deposit rates

Moneycontrol Bureau

The Reserve Bank of India (RBI) asked banks to frame transparent policy on interest rates of fixed deposit schemes. This move is aimed at safeguarding retail depositors from any discrimination that may arise between retail and bulk deposit (i.e. deposit amount is above Rs 15 lakh) schemes. Though the regulator had mentioned about it in the monetary policy statement announced on April 17, 2012; this was a separate notification for the same.

"It has been observed that there are wide variations in the interest rates offered by banks on single term deposits of  Rs 15 lakh and above and those offered on other deposits (i.e. deposits less than Rs 15 lakh) of corresponding maturities. Further, banks are offering significantly different rates on deposits with very little difference in maturities," RBI said the notification on Tuesday.

For example, state-owned Dena Bank offers 8% per annum on a deposit scheme of above Rs 15 lakh but below Rs 1 crore for a tenure of 46 to 60 days while the rate of interest is 200 basis points less (6%) for an amount below Rs 15 lakh. Similarly, Corporation Bank is offering 6.50% to senior citizens on deposits in the range of Rs 15 lakh to 1 crore for 15 to 29 days while the rate of interest is 6% for amount below Rs 15 lakh.

"This suggests inadequate liquidity management system and inadequate pricing methodologies. Banks are, therefore, advised to put in place a Board approved transparent policy on pricing of liabilities. The Board/ALCO should ensure that the variation in interest rates on single term deposits of  Rs 15 lakh and above and other term deposits (i.e. deposits less than Rs 15 lakh) is minimal for corresponding maturities."

ALCO is the asset liability committee that meets after every stipulated interval, primarily to decide on interest rate revisions.