RBI Seeks Feedback From Banks For Sub-7-Day Fixed Deposits

The Reserve Bank of India (RBI) is exploring reducing the minimum term of fixed deposits (FDs) from seven days to less than seven days. RBI has asked for suggestions regarding it from the banks. This is reportedly due to the slowed growth in deposits, which stood at 10 per cent compared to 13 per cent last year, reported The Economic Times.

According to the latest SBI research report, "With rapid transmission of rate cuts desired, deposit rates would come under immediate downward pressure, ensuring deposits mobilisation remain a Herculean challenge for Banks…. While Credit growth is expected to moderate at 11-12 per cent for FY26, Deposits may stop shy of double-digit growth during the FY, accentuating a wedge between Credit-Deposits momentum, squeezing the NIM of banks adversely."

In light of the challenge to increase deposit growth, discussions are underway, and banks can give their suggestions by the end of this month.

At present, all banks offer FDs for a minimum of seven days tenure, which was stipulated by the RBI in 2004. Earlier, the minimum limit used to be 15 days for FDs.

Reportedly, RBI has already discussed the matter with a few banks, including both public and private sector banks. These include the State Bank of India, Punjab National Bank, and Axis Bank. However, other banks can also offer their suggestions to the RBI within this month about reducing the minimum tenure. 

Lowering the tenure might help banks receive more deposits, especially from corporate customers who tend to have surplus funds many times but only for very short, say 3-4 days or less. They can park such funds with the banks instead of investing in other instruments.

There are speculations that if the minimum tenure is lowered, the banks will be given the freedom to decide their own tenure. However, nothing is confirmed yet.

Furthermore, few banks may want to reduce the minimum tenure for FDs. They cite the chances of asset-liability mismatch. For them, the minimum seven-day tenure should be maintained. The Indian Bank Association (IBA) is likely to send its feedback on the matter by the month's end after discussing it with different banks.

For banks, deposit is the liability, and interest on loans is the income. To maintain the flow between assets and liabilities, banks need to keep enough deposits at all times. So, if there is a mismatch between the deposit period and credit period, it can create liquidity issues. Some banks are of the opinion that the sub-7 tenure would help corporations more than banks.