The Reserve Bank of India (RBI) on Friday slammed the brakes on banks cornering deposits through special schemes with lock-in periods. The fact that these banks give depositors no access to their own funds during the tenure, offer no liquidity against the deposits, or even allow premature withdrawals prompted the apex bank to order an immediate halt to such schemes. Banks have also been directed to report compliance forthwith.
The December-March periods usually witnesses a massive scale-up bank credit off-take?a trend seen in the last three fiscal years starting 2005?resulting in liquidity tightness. As a result, such deposit schemes were born out of desperation with the bait of 25-50 bps higher rates over deposits of similar maturities. ICICI Bank has been an aggressive player in this space, but did not have preconditions on premature withdrawals, said the bank?s official spokesperson.
Banks typically offered these higher rates for deposits between 300 days and 60 months with lock-in periods of 6-12 months. Any withdrawal during this period would invite either forfeiture of the entire interest earned in that period or partial payment of interests.
Depositors with similar maturity periods who have not opted for such lock-in schemes were offered lower rates and this has upset the regulator, which has now warned violators of action under the Banking Regulation Act, 1949.
State-run banks have largely welcomed the RBI?s move, while private banks weren?t too happy. ?I entirely agree with RBI. I did not introduce any such scheme when I was in charge of Indian Bank and when I joined PNB, I withdrew the (special deposit) scheme this June. Such schemes are discriminatory and against the interests of small depositors,? said KC Chakrabarty, CMD of state-run Punjab National Bank.
RBI has also warned banks against any interest discrimination between deposits accepted on the same date for the same maturity, irrespective of bank branch. Except with respect to fixed deposit schemes specifically for resident senior citizens that offer higher and fixed interest rates and single-term deposits of Rs 15 lakh and above on which varying rates of interest may be permitted on the basis of deposit size, RBI said.
?The customer comes in with his eyes open, so why should we not levy a penalty for such schemes? The customer can park funds in schemes with lower rates and no riders,? said a senior executive at a leading private sector bank.