What changed
RBI observed that UCBs offer significantly different interest rates on single term deposits of ₹15 lakh and above compared to smaller deposits of the same maturity, and also vary rates sharply across close maturities. The central bank now mandates a Board-approved transparent pricing policy for liabilities and requires that rate variations between bulk and retail deposits be minimal.
What it means for you
UCBs must overhaul their deposit pricing to ensure fairness to retail depositors and demonstrate robust liquidity management. The Board or ALCO must actively oversee that rate spreads between bulk and retail deposits are narrow and justified. This could compress margins on large deposits and force better alignment of pricing with actual liquidity needs.
What you must do
- Formulate and approve a Board-level transparent policy on liability pricing, covering all deposit categories.
- Ensure ALCO reviews and minimizes the interest rate gap between single term deposits of ₹15 lakh+ and other term deposits of corresponding maturities.
- Disclose the full schedule of interest rates, including differential rates, in advance and avoid any negotiation with depositors.
- Review deposit tenor buckets to eliminate unjustified rate variations across closely spaced maturities.
Who it affects
All Primary (Urban) Co-operative Banks, ALCOs and treasury teams of UCBs, Retail depositors of UCBs
What is the threshold for bulk deposits under this circular?
The circular refers to single term deposits of ₹15 lakh and above (₹1.5 million) as bulk deposits, which can attract differential rates but must now have minimal variation compared to retail deposits of the same maturity.
Does this circular ban differential interest rates on large deposits?
No, it does not ban differential rates. It requires that the variation between rates on bulk deposits (₹15 lakh+) and other deposits of corresponding maturities be minimal, and that the pricing policy be transparent and Board-approved.
What prompted this directive from RBI?
RBI observed wide and unjustified rate differences between retail and bulk deposits, as well as across similar maturities, indicating weak liquidity management and pricing methodologies, which disadvantaged retail depositors.