Amendment to RBI’s Master Direction on Interest Rate on Deposits
The Reserve Bank of India (RBI) has recently announced an amendment to the Master Direction on Interest Rate on Deposits, originally issued on March 3, 2016. This amendment, which is documented in the circular DoR.SPE.REC.No.24/13.03.00/2024-2025 dated June 7, 2024, revises the definition of “Bulk Deposits” for Scheduled Commercial Banks, Small Finance Banks, and Local Area Banks.
Previously, the Master Direction defined “Bulk Deposits” under paragraph 3(a)(i) as single Rupee term deposits of Rupees two crore and above for Scheduled Commercial Banks (excluding Regional Rural Banks) and Small Finance Banks, and Rupees one crore and above for Regional Rural Banks. Upon review, the RBI has decided to revise this definition to better reflect the current banking environment and deposit trends.
As per the new directive, “Bulk Deposits” will now mean single Rupee term deposits of Rupees three crore and above for Scheduled Commercial Banks (excluding Regional Rural Banks) and Small Finance Banks. For Local Area Banks, the threshold for bulk deposits is set at single Rupee term deposits of Rupees one crore and above, aligning them with the existing criteria for Regional Rural Banks.
This revision aims to streamline the classification of deposits across different banking institutions and ensure a more uniform approach to managing large deposits. The amended definition is expected to impact how banks manage their liquidity and interest rate risk, potentially leading to adjustments in their interest rate offerings and deposit mobilization strategies.
The revised definitions are detailed in the annex to the circular, which updates the relevant sections of the Master Direction to incorporate these changes. Specifically, the updated paragraph 3(a)(i) now reads:
- “Bulk Deposit” means single Rupee term deposits of Rupees three crore and above for Scheduled Commercial Banks (excluding Regional Rural Banks) and Small Finance Banks.
- For Regional Rural Banks and Local Area Banks, “Bulk Deposit” means single Rupee term deposits of Rupees one crore and above.
These changes are issued under the authority granted to the RBI by Section 35A of the Banking Regulation Act, 1949. The revised instructions come into force with immediate effect, making them applicable to all Scheduled Commercial Banks (excluding Regional Rural Banks), Small Finance Banks, and Local Area Banks.
This amendment highlights the RBI’s ongoing efforts to adapt regulatory frameworks to evolving financial conditions and ensure that the banking sector remains robust and responsive to changes in the economic landscape. By updating the definition of bulk deposits, the RBI aims to enhance the stability and efficiency of deposit management across various banking institutions, ultimately contributing to the overall health of the financial system.
