RBI Allows Differentiated Bulk Deposit Rates Based on Run-off Risk

The Reserve Bank of India (RBI) has issued new guidelines permitting banks to offer differentiated interest rates on bulk deposits, defined as single rupee deposits of ₹2 crore and above. This policy shift allows banks to set varying rates for bulk deposits based on their perceived run-off risk, a measure of how likely these deposits are to be withdrawn. Historically, banks were required to offer uniform interest rates on all bulk deposits within the same maturity bracket. The updated framework provides banks with greater flexibility in managing their liquidity and funding costs. Under the revised regulations, banks are now mandated to transparently disclose the interest rates applicable to both retail and bulk deposits on their official websites. This disclosure must be made in advance of offering these rates to the public. The central bank's move aims to enhance the efficiency of money markets and empower banks to better manage their asset-liability mismatches. By allowing risk-based pricing, the RBI intends to incentivize banks to attract and retain more stable sources of funding, potentially reducing their reliance on volatile short-term interbank markets. This differentiation could lead to more competitive pricing for larger institutional deposits, reflecting their specific risk profiles and the bank's individual liquidity needs. The updated rules emphasize transparency, requiring banks to clearly articulate their rate structures for bulk deposits to ensure market participants are well-informed.