RBI allows banks to offer higher rates on ‘non-callable’ deposits

Reserve Bank of India has said banks can offer higher interest rate on deposits wherein the customers do not withdraw prematurely.

However, this facility is only on deposits of over Rs 15 lakh and banks must disclose in advance the details of interest rates payable, the central bank said in a notification on Thursday.

Banks should also have a board-approved policy for the same and ensure the interest rates offered are reasonable, transparent and available for supervisory scrutiny.

At present, deposits come with the facility of premature withdrawal and require the depositor to forego the interest due after the date of the withdrawal. Now banks can offer higher rate on deposits by making them non-callable.

Bankers said that given the predictability that non-callable deposits offer, this would make asset liability management easier for them. Banks would be able to attract and retain bulk deposits better by offering higher rates.

Animesh Chauhan, MD & CEO, Oriental Bank of Commerce, said, “While this feature has been in discussion for quite sometime, RBI has now given us another tool to manage our liabilities better. However, the difference in rate that a callable deposit and other deposits will get, have to be worked out.”

“A bulk deposit is always sensitive to the interest rate and that keeps jumping from one bank to another bank. So, there we will have a significant impact,” VR Iyer, CMD of Bank of India, told a private channel.

Banks would be able to give 10-25 basis points more on such deposits depending on the tenure and quantum of deposits, bankers said.

“For shorter tenures, 10 bps could be added and for longer tenure perhaps the interest rate could be higher by adding 25-50 basis points,” said an executive of a public sector bank.

Bankers said that given the current falling interest rate cycle, many corporates may prefer to lock-in funds in such non-callable deposits. “This is very useful for corporates in a falling rate scenario since they can get a higher rate for a fixed amount,” said Sidharth Rath president- treasury and capital markets at Axis Bank.

Terms of deposit

The facility is only for deposits of over R15 lakh and banks must disclose in advance the details of interest rates.

Banks must have a board-approved policy and ensure the rates offered are reasonable, transparent and available for supervisory scrutiny.


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