FD rates set to change for bulk deposits: Will you get more interest now?

The RBI  in the MPC meeting today announced a significant change for depositors.

The central bank raised the limit on bulk deposits, affecting scheduled commercial banks (SCBs), small finance banks (SFBs), and local area banks.

Previously, the bulk deposit limit for SCBs and SFBs was Rs 2 crore. With the revision, the new limit is Rs 3 crore. This change excludes regional rural banks.

The Statement on Developmental and Regulatory Policies, issued on 7 June, stated, "Banks have the discretion to offer a differential rate of interest on the bulk deposits as per their requirements and Asset-Liability Management (ALM) projections.

The bulk deposits limit was enhanced in 2019 for Scheduled Commercial Banks (SCBs) (excluding Regional Rural Banks) and Small Finance Banks (SFBs) as ‘Single Rupee term deposits of Rs 2 crore and above’. On review, it is proposed to revise the definition of bulk deposits as ‘Single Rupee term deposits of Rs 3 crore and above’ for SCBs (excluding RRBs) and SFBs. Further, it is also proposed to define the bulk deposit limit for Local Area Banks as ‘Single Rupee term deposits of Rs 1 crore and above’ as applicable in the case of RRBs. Necessary guidelines will be issued shortly." 

Adhil Shetty, CEO of BankBazaar.com, commented, "The proposal to revise the definition of bulk deposits as ‘Single Rupee term deposit of Rs 3 crore and above’ for SCBs (excluding RRBs) and SFBs will make bulk deposits challenging, especially for high net worth and institutional depositors. Earlier, bulk deposits were defined as Rs 2 crore. These deposits have typically offered higher interest rates, but with the central bank increasing the threshold limit, there may be a dip in interest for bulk deposits. However, the enhancement of the deposit limit is unlikely to have an impact on small depositors."

As a result of this change, deposits made by individuals between Rs 2 crore and Rs 3 crore will now be classified as retail fixed deposits (FDs) rather than bulk FDs, a shift that could affect the interest rates they receive. In other words, investors making a single FD of Rs 3 crore and more will be considered as a bulk FD. However, if they invest in FD up to Rs 3 crore, it will be considered a retail FD.