RBI: Banks can pay less on matured bulk FDs | India Business News – Times of India

MUMBAI: In a bid to discourage businesses from using a bank for treasury management, the Reserve Bank of India has allowed banks to offer the lower of either the savings deposit rate or fixed deposit rate on matured FDs.
Given the surplus liquidity in the system, short-term interest rates are very low, and banks offer a risk-free return on idle money. For businesses that have a cash stash running into crores, a 3-4% return (which is what most savings deposits provide), is a decent yield for the short term. The move by the RBI is expected to force businesses to make use of their resources more productively or deploy them in longer-term deposits.
The circular had triggered speculation in social media that auto-renewal of fixed deposits would be impacted. However, RBI sources said that the circular does not pertain to auto-renewals at all. Bankers also said that there was no intention to do away with auto-renewals as banks cannot disregard standing instructions given by customers.

The RBI is likely to clarify that auto-renewals and renewal of overdue deposits will continue like earlier.
In a circular revising its rules for interest on matured fixed deposits, the RBI on Friday said: “If a term deposit (TD) matures and proceeds are unpaid, the amount left unclaimed with the bank shall attract the rate of interest as applicable to a savings account or the contracted rate of interest on the matured TD, whichever is lower”.
Earlier banks were forced to provide savings account rates on even bulk deposits which offered returns lower than savings account rates.
In the case of overdue deposits, the RBI had left it to banks to their board laying down a transparent policy. This allows the bank to renew a fixed deposit from the maturity date even if the customer delays approaching the bank.
The circular could also impact a very small section of retail customers who have accounts in banks that high savings account rates. Several small finance banks and some private banks offer returns ranging from 4% to 7% on savings accounts.