The Reserve Bank of India (RBI) has conducted a review of bulk deposit limits for financial institutions, specifically focusing on Regional Rural Banks (RRBs). As a result, the bulk deposit limit for RRBs has been significantly increased from Rs 15 lakh to Rs 1 crore. This adjustment carries significant implications for the operational framework of RRBs and aims to create a more equitable banking landscape.
Definition of “Bulk Deposit” Varied Among Banks
- Defining Bulk Deposits: Bulk deposits can take on different definitions across various banking institutions, depending on the size of the deposit, but the specifics often differ.
Increased Limit for RRBs: Promoting Equitable Practices
Boosting RRB Bulk Deposit Limit: The RBI has raised the bulk deposit limit for Regional Rural Banks from Rs 15 lakh to Rs 1 crore, a substantial change aimed at promoting equity among banks, especially those serving rural and semi-urban areas.
- Implications on Interest Rates: This alteration will have implications on how banks can offer interest rates on bulk deposits. With the increased limit, RRBs will face constraints on operational autonomy, as they will need to offer a single interest rate to all depositors with the same tenure.
- RRBs: Focused on Rural and Urban Areas: RRBs are government-owned Scheduled Commercial Banks with a primary focus on rural regions. They not only provide essential banking services but also offer modern conveniences such as debit cards and internet banking, extending their reach to both rural and urban areas.
Depositor Protection: Deposits in RRBs are secured by the Deposit Insurance and Credit Guarantee Corporation (DICGC), ensuring protection of up to five lakh rupees for each depositor, thereby instilling confidence in depositors.
Facilitating Premature Withdrawals
RBI’s Directive on Premature Withdrawals: On the same day, the RBI issued a separate directive, mandating that banks must allow premature withdrawals on all term deposits up to Rs 1 crore. This marks a significant increase from the previous limit of Rs 15 lakh for ‘non-callable’ fixed deposits.
- Enhancing Flexibility for Depositors: The change enables individuals to make premature withdrawals on domestic term deposits up to one crore rupees, providing added flexibility to depositors in managing their funds.
Applicability to Non-Resident Deposits: Notably, the RBI’s instructions regarding premature withdrawals apply not only to domestic term deposits but also to Non-Resident (External) Rupee (NRE) Deposits and Ordinary Non-Resident (NRO) Deposits.