RBI Raises Bulk Deposits Limit To Rs 3 Crore For Banks And SFBs

The Reserve Bank of India (RBI) has reviewed the limit for bulk deposits for scheduled commercial banks (SCBs), small finance banks (SFBs), and local area banks, Governor Shaktikanta Das announced on Friday during his monetary policy address.

Following the review, the RBI proposed redefining bulk deposits as "single rupee term deposits of Rs 3 crore and above" for SCBs and SFBs. This raises the bulk deposits limit from Rs 2 crore, which was set in 2019, up from Rs 1 crore.

Similarly, for local area banks, the new definition of bulk deposits will be "single rupee term deposits of Rs 1 crore and above."

The central bank will issue detailed guidelines on this matter shortly.

Bulk deposits are typically used by high net-worth and ultra high net-worth individuals for short durations. Deepak Gaddhyan, head of branch banking and retail liabilities at RBL Bank, noted that the change reflects the current economic conditions and the emergence of a new affluent class. "This adjustment aims to bring more stability and predictability, reducing volatility in both customer rates and the cost of deposits for banks," he explained. Bulk deposits are more volatile than retail granular deposits, Gaddhyan added.

Currently, the State Bank of India (SBI) offers a 5.25% rate for deposits of 7 to 45 days, compared to 3.5% for standard term deposits. The rate for bulk deposits decreases with longer tenors, with the differential between bulk and term deposit rates narrowing from 75 basis points for 46-179 day deposits to 20 basis points for 1-2 year deposits. For deposits between two and three years, SBI offers the same rate for both term and bulk deposits, and a lower rate for deposits from three to ten years.

Shalini Sekhri, chief growth officer at Renaissance Investment Managers, commented on the shifting definition of wealth and the consequent adjustments in financial thresholds. "It is unlikely that users of these products will change their habits significantly, as convenience plays a major role," she said. Lower returns are not expected to significantly deter bulk depositors, as this is the asset class they are most comfortable with, Sekhri added.

From the banks' perspective, the move is expected to increase the proportion of retail deposits, according to Ajay Kanwal, MD & CEO of Jana Small Finance Bank. "The direction of retail deposits is positive... there may not be a significant impact, but the cost of funds for banks could marginally decrease," he stated. However, Kanwal also noted that depositors' ability to negotiate better interest rates might diminish with the increased limit to Rs 3 crore.