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MUMBAI: The RBI has said that henceforth, banks must allow pre-mature withdrawals on all bank deposits up to Rs 1 crore.
The central bank has hiked the minimum limitfor ‘non-callable’ fixed deposits to Rs 1 crore from Rs 15 lakhs earlier. RBI had earlier allowed banks to offer higher rates on unbreakable fixed deposits that could not be withdrawn before maturity.
Banks are incentivised to offer higher deposit rates without a pre-mature withdrawal facility during a rising interest rate regime. Non-callable deposits prevent customers from withdrawing their money mid-term if interest rates rise. For customers, the incentive to invest in illiquid, non-callable deposits is that these schemes offer a slightly higher rate.
Bankers feel that the objective of hiking the minimum size of deposits on non-callable deposits is to protect small investors. Banks offer a return that is 25 to 30 basis points higher on non-callable FDs. The return is higher for deposits of higher value. In a separate notification, RBI has also hiked the bulk deposit limit for rural banks to Rs 1 crore from Rs 1 lakh. This means that banks can offer differential rates only on deposits above Rs 1 crore.
The central bank has hiked the minimum limitfor ‘non-callable’ fixed deposits to Rs 1 crore from Rs 15 lakhs earlier. RBI had earlier allowed banks to offer higher rates on unbreakable fixed deposits that could not be withdrawn before maturity.
Banks are incentivised to offer higher deposit rates without a pre-mature withdrawal facility during a rising interest rate regime. Non-callable deposits prevent customers from withdrawing their money mid-term if interest rates rise. For customers, the incentive to invest in illiquid, non-callable deposits is that these schemes offer a slightly higher rate.
Bankers feel that the objective of hiking the minimum size of deposits on non-callable deposits is to protect small investors. Banks offer a return that is 25 to 30 basis points higher on non-callable FDs. The return is higher for deposits of higher value. In a separate notification, RBI has also hiked the bulk deposit limit for rural banks to Rs 1 crore from Rs 1 lakh. This means that banks can offer differential rates only on deposits above Rs 1 crore.
