The Manipal-based bank has become the first public sector bank to launch such an innovative scheme. The State Bank of India is also planning to launch a floating rate deposits, the details of which are still being worked out. Among private sector banks, Centurion Bank was the first to launch floating rate deposits. The RBI allowed banks to float such deposits last year.

Syndicate Bank said that the RBI fixed rate repo, which is at present fixed at 6 per cent, will serve as the benchmark and the deposit products will be priced at a spread ranging from 0.25 per cent to 1.50 per cent. In effect, the bank will offer between 6.25 per cent and 7.50 per cent interest rates on deposits. However, therelease did not specify the maturity slabs. Industry sources said it could be only for the short-term deposits between 15 days and 180 days.

The bank, however, has not spelt out the benchmark in case the RBI resorts to the auction-based repo method replacing the present fixed repo system.

Banks normally offer fixed rate of interest on deposits and the depositors who have locked into such deposits at the lower end of interest rate cycle find it difficult to encash the benefits arising out of the rise in interest rates during the duration of the deposits.

The Syndicate Bank release said that the bank presently proposes to cater to the needs of the institutional investors and extend this deposit scheme to retail depositors at a later stage.

"The bank is trying its best to capture high end deposits and is thereforee offering the floating rate deposits. High end deposits, generally from corporates, have of late been routed to the more aggressive new generation private sector banks bringing down their costof deposits," a bank analyst said.

Both HDFC Bank and ICICI Bank have shown increased profitablity on an otherwise difficult year for the banking sector on account of low-cost deposits mobilisd by them. For the public sector banks, the story has been otherwise with interest spreads coming under pressure coupled with low credit offtake and shrinkage in volume of business. The introduction of floating rate deposits will help them overcome asset-liability mismatches, analysts said.