“Our bank’s FRTD (floating rate interest on retail term deposits) would allow our customers to take advantage of interest rate changes without closing and rebooking their fixed deposits,” IDBI Bank chairman and managing director R M Malla said
Mumbai: State-run IDBI Bank became the first lender to come out with a floating rate deposit product after the Reserve Bank of India (RBI) nudged banks to switch to such mode of deposits in July, reports PTI.
“Our bank’s FRTD (floating rate interest on retail term deposits) would allow our customers to take advantage of interest rate changes without closing and rebooking their fixed deposits,” IDBI Bank chairman and managing director R M Malla said in a statement.
This is not the first time that any bank has launched such a product. Country’s largest lender State Bank of India (SBI) had in fact experimented with such a product, only to be met with a poor response in the past and then scrapped it.
“Customers will not like to start a floating rate deposit when rates go down, while the bank will be wary of launching such a product in a scenario of rising rates,” an SBI official had explained as the reason for discontinuing the offer early this month.
The RBI, which is widely expected to soften its elevated interest rates going ahead, wants the banks to explore the product as it can help banks smoothen out their asset-liability mismatches as lenders carry higher interest rate deposits for a longer period.
RBI governor D Subbarao had discussed the possibility of launching such a product with bank chiefs at the customary post-policy meeting on 31 July 2012.
The IDBI product entails a minimum deposit of Rs10,000 or in multiples of Rs1,000 up to a maximum of Rs1 crore. The interest rate on deposit will move in tandem with a reference rate to be readjusted on quarterly basis, a bank statement said.
The reference rate will be arrived at as per the average yield on a 364-day Treasury bill auctions undertaken by RBI during the three months period, it added.
The deposit has a minimum one year lock-in period and is available in six maturity slabs ranging up to 10 years.
IDBI Bank’s fixed interest rate depositors have the liberty to move their deposit to the floating interest rate without any penalties, it said, stressing that the reverse is not allowed.
The product is expected to appeal to those retail depositors who, having borrowed at floating rates are exposed to interest arte risks, the bank said.
Inside story of the National Stock Exchange’s amazing success, leading to hubris, regulatory capture and algo scam
Fiercely independent and pro-consumer information on personal finance.
1-year online access to the magazine articles published during the subscription period.
Access is given for all articles published during the week (starting Monday) your subscription starts. For example, if you subscribe on Wednesday, you will have access to articles uploaded from Monday of that week.
This means access to other articles (outside the subscription period) are not included.
Articles outside the subscription period can be bought separately for a small price per article.
Fiercely independent and pro-consumer information on personal finance.
30-day online access to the magazine articles published during the subscription period.
Access is given for all articles published during the week (starting Monday) your subscription starts. For example, if you subscribe on Wednesday, you will have access to articles uploaded from Monday of that week.
This means access to other articles (outside the subscription period) are not included.
Articles outside the subscription period can be bought separately for a small price per article.
Fiercely independent and pro-consumer information on personal finance.
Complete access to Moneylife archives since inception ( till the date of your subscription )
