RBI gives banks more time to implement bulk deposit rate norms, deadline now Oct 1

Synopsis

Banks now have until October 1 to implement new differential interest rate rules. These norms allow varied rates on bulk deposits considering liquidity coverage ratios. The Reserve Bank of India has extended the implementation deadline after bank feedback. Rates for deposits under Rs 3 crore remain outside these new stipulations. Banks must now disclose bulk deposit rates online by 10:00 am daily.

Mumbai: The RBI has given banks more time to implement the directions on differential interest rate for bulk deposits after representation from banks. In final directions issued on Thursday, RBI said banks will have time to implement these new norms from October 1, versus the previously proposed immediate implementation. The proposed framework permits banks to offer differential interest rates on bulk deposits taking into account the applicable run-off rates under the Liquidity Coverage Ratio (LCR) framework.

Following the feedback received from banks and Fixed Income Money Market and Derivatives Association of India (FIMMDA) the RBI said that banks can disclose the bulk deposits rates on their websites by 10:00 am with a grace time of 10 minutes, latest by 10:10 am, on each business day. However, the interest rate on deposits below Rs 3 crore have been kept out of this stipulation as banks generally disclose the rates on such deposits in advance of the start of business day.

Banks can offer differential interest rate on bulk deposits, by considering the differential run-off rate applicable to deposits or unsecured wholesale funding from retail or non-retail customers, respectively under the LCR framework. Under the LCR framework, retail deposits generally attract lower run-off rates and are considered more stable sources of funding, requiring banks to hold lower levels of liquid assets against them. In contrast, wholesale or non-retail deposits carry higher run-off rates and impose a greater liquidity burden on banks.

The RBI did not accept bank feedback asking for the freedom to use run-off rates for pricing to be extended to deposits of less than Rs 3 crores “as permitting banks to offer differential interest rates on deposits of less than Rs 3 crore, based on differential run-off rates, would make the interest rates offered on such deposits more subjective and complex.”

The suggestion by banks to be provided a standard categorisation of the type of entities based on the run-off rates was also not accepted by RBI. “It would be appropriate for the banks to do the necessary categorisation as per their need, based on the differential run-off rates applicable to deposits/ unsecured wholesale funding from various retail and non-retail customers, basis which they compute and submit their LCR returns to RBI,” the central bank said.