What changed
Previously, term deposits under ₹15 lakh required a minimum maturity of 15 days, while deposits of ₹15 lakh and above could be as short as 7 days. The RBI allowed banks, at their discretion, to reduce the minimum tenor for retail deposits (under ₹15 lakh) to 7 days, effective November 1, 2004. Banks retained the freedom to offer differential interest rates on wholesale deposits of ₹15 lakh and above.
What it means for you
Banks could offer short-term retail deposit products with a 7-day maturity, enabling them to attract customers seeking liquidity and compete more effectively in the deposit market. This uniformity simplified deposit tenor management and may have helped banks better match asset-liability durations. However, banks had to carefully manage interest rate risk and liquidity implications of shorter retail deposits.
What you must do
- Update your bank's deposit policy and product documentation to reflect the new minimum tenor of 7 days for retail term deposits under ₹15 lakh (if not already done).
- Train branch and treasury staff on the revised tenor options and ensure systems can handle 7-day retail deposits.
- Review your asset-liability management (ALM) framework to account for potential shifts in deposit maturity profiles.
- Communicate the change to customers through marketing channels to highlight new short-term deposit offerings.
Who it affects
All scheduled commercial banks (excluding RRBs), Retail depositors with term deposits under ₹15 lakh, Bank treasury and ALM teams, Branch operations and product management teams
Does this change apply to NRO term deposits as well?
Yes, the circular explicitly mentions that the revised minimum tenor of 7 days applies to both domestic and Ordinary Non-Resident (NRO) term deposits under ₹15 lakh.
Can banks still offer different interest rates for wholesale deposits?
Yes, banks continue to have the freedom to offer differential rates of interest on term deposits of ₹15 lakh and above, as was the case before this circular.
Is it mandatory for banks to reduce the minimum tenor to 7 days?
No, it is at the bank's discretion. The RBI has only permitted banks to reduce the minimum tenor from 15 days to 7 days; banks may choose to retain the existing 15-day minimum if they prefer.