RBI permits different bulk deposit rates based on run-off risk

The Reserve Bank of India (RBI) has allowed banks to offer different interest rates for various categories of bulk deposits of ₹3 crore and above, based on their run-off risk, giving lenders greater flexibility in deposit pricing.

“A bank shall have the freedom to offer differential interest rates on bulk deposits, by considering the differential run-off rate applicable to deposits or unsecured wholesale funding under the LCR (Liquidity Coverage Ratio) framework,” the central bank notified on Thursday. The norms will come into effect from 1 October.

A run-off rate is the estimated share of a bank’s deposits or liabilities that customers may withdraw during a short-term financial stress event. It is used to calculate the LCR under the Basel III framework, which measures a lender’s ability to withstand net cash outflows over a 30-day stress period.

However, these interest rates must be uniform across all branches, and for all customers, with no discrimination among deposits of a similar amount accepted on the same date at any of the bank’s offices, the central bank said.

Banks will need to disclose interest rates payable on deposits, including bulk deposits, on their website in advance. Rates for bulk deposits will need to be disclosed at 10am, with a 10-minute grace period, on each business day. Banks will also be free to continue to disclose interest rates additionally through other modes of communication, such as SMS and e-mail.

Banks given time

Earlier proposed to be made effective from the date of issue, RBI delayed the timeline for implementation after banks sought an extension, citing modifications required in their systems and processes for applying run-off rates as a factor for the determination of interest rates on bulk deposits, and also for disclosure of interest rates on bulk deposits on the website.

As part of their feedback on the draft norms issued in June, banks said that applying the run-off rates to determine bulk deposit rates could be difficult and subjective, as it involves a number of factors, such as whether net banking is available, and whether businesses are large or small, financial or non-financial companies.

Accordingly, they sought that RBI provide a standard categorization of the type of entities based on the run-off rates.

However, RBI rejected the request, saying it would be more appropriate for banks to do the necessary categorization as per their need, based on funds from various retail and non-retail customers.

Banks had also sought differential pricing for non-bulk deposits, or those amounting to less than ₹3 crore, to prevent customers with higher run-off rates from splitting bulk deposits into multiple deposits of less than ₹3 crore to avail higher interest rates.

“The feedback was examined, and it was decided not to implement the same at this stage, as permitting banks to offer differential interest rates on deposits of less than ₹3 crore, based on differential run-off rates, would make the interest rates offered on such deposits more subjective and complex,” RBI said.

More regulatory disclosures

Separately, the banking regulator also asked banks to make disclosures in accordance with Pillar 3 of the Basel Framework from 1 April 2027.

The norms aim to promote market discipline through regulatory disclosure requirements and allow market participants to access key information relating to a bank’s regulatory capital and common key risk metrics.

“It reduces information asymmetry and helps promote comparability of a bank’s risk profiles within and across jurisdictions,” RBI said, adding that the norms will be applicable at the top consolidated level of the banking group to which the capital adequacy framework applies.

The disclosures will include information on the risk management approach, key prudential metrics, an overview of risk-weighted assets (RWA), including information on remuneration, specific indicators for systemically important banks, and credit quality of assets, among others.

For Pillar 3 disclosures to be made up to and including the reporting period ended FY29, banks will need to publish them within a maximum of seven working days from the date of the financial results, whereas from FY30 onwards, banks will need to publish these disclosures concurrently with their financial reports for the corresponding period, RBI said.