RBI lets banks offer differential rates on bulk deposits
What's the story
The Reserve Bank of India (RBI) has permitted banks to offer different interest rates on bulk deposits, depending on their specific run-off rates under the liquidity coverage ratio (LCR) framework. The new rule will apply to both domestic rupee deposits and those held by non-resident Indians (NRIs). However, the broader contours of bulk deposits remain unchanged with uniformity in interest rates across all branches and customers without discrimination.
Rule details
What is the new rule?
The RBI's new rule allows banks to offer different interest rates on bulk deposits of ₹3 crore and above, depending on their run-off risk. This gives lenders more flexibility in deposit pricing.
"A bank shall have the freedom to offer differential interest rates on bulk deposits, by considering the differential run-off rate applicable to deposits or unsecured wholesale funding under the LCR framework," the central bank said in a notification.
Run-off significance
What is run-off rate and how does it work
A run-off rate is the estimated share of a bank's deposits or liabilities that customers may withdraw during a short-term financial stress event.
It is used to calculate the LCR under the Basel III framework, which measures a lender's ability to withstand net cash outflows over a 30-day stress period.
However, these interest rates must be uniform across all branches and for all customers without discrimination.
Disclosure requirements
Banks must disclose interest rates in advance
Banks will have to disclose interest rates payable on deposits, including bulk ones, on their website in advance.
Rates for bulk deposits will have to be disclosed at 10am with a 10-minute grace period every business day.
The RBI has also asked banks to make disclosures in accordance with Pillar 3 of the Basel Framework from April 1, 2027.
These norms aim to promote market discipline through regulatory disclosure requirements and allow market participants access to key information.