What changed
RBI observed that banks offer significantly different interest rates on single term deposits of ₹15 lakh and above compared to smaller deposits of the same maturity, and also on deposits with very close maturities. This circular advises banks to adopt a board-approved transparent policy for liability pricing and ensure minimal variation in rates for corresponding maturities.
What it means for you
Banks must now tighten their deposit pricing frameworks to avoid wide spreads that signal weak liquidity management. The directive pushes ALCOs and boards to align rates more closely across deposit slabs. This could compress margins on large-ticket deposits and force better asset-liability matching.
What you must do
- Review and revise your Board-approved policy on liability pricing to ensure minimal rate variation between deposits of ₹15 lakh and above and smaller deposits of similar maturities.
- Ensure ALCO minutes and rate-setting processes explicitly justify any rate differences for large deposits versus retail deposits of the same tenor.
- Disclose the full schedule of interest rates, including differential rates, in advance and ensure no negotiation with depositors on rates.
- Audit your current deposit portfolio for any wide rate gaps that could attract regulatory scrutiny.
Who it affects
State Co-operative Banks, Central Co-operative Banks, Asset-Liability Committees (ALCOs), Treasury and deposit pricing teams
What is the minimum deposit threshold for the differential rate rule?
The circular specifically refers to single term deposits of ₹15 lakh and above, as originally permitted in 1998.
Does this circular apply to all banks or only co-operative banks?
It is addressed to Chairmen/CEOs of all State and Central Co-operative Banks, so it applies only to those entities.
What should we do if our current rates have wide variations?
You must immediately put in place a Board-approved transparent policy on liability pricing and ensure that the variation in rates for deposits of ₹15 lakh and above versus smaller deposits of corresponding maturities is minimal.