Big Change in Bank FDs: RBI Eyes Sub-7-Day Deposits After 21 Years

Business News: Reserve Bank of India unveiled a draft framework proposing fixed deposits (FDs) with maturities below seven days, marking the first significant change to FD tenure rules since 2004. Currently, the shortest FD tenure is seven days, but the RBI aims to introduce ultra-short-term options of one to six days to boost deposit growth, which has lagged behind credit expansion at 10.6% versus 13.9% year-on-year. The proposal, open for public feedback until June 30, 2025, seeks to enhance liquidity and attract investors seeking flexible, short-term savings options.

Addressing Liquidity and Deposit Challenges

The RBI’s move is driven by concerns over slowing deposit growth, critical for funding bank lending. Short-term FDs could appeal to retail and corporate investors, offering quick returns and flexibility for managing surplus funds. The framework also proposes allowing premature withdrawal for these micro-tenure FDs with minimal penalties, unlike longer-term FDs. A 2024 RBI report highlighted that banks face liquidity mismatches, with 60% of deposits locked in three-to-five-year terms. By enabling sub-seven-day FDs, the RBI aims to align banking with modern financial needs, competing with liquid mutual funds and digital wallets, which have gained traction, as noted in X discussions.

Banker Concerns and Economic Impact

Bankers have expressed mixed views. While public sector banks like SBI see potential in attracting short-term corporate funds, private banks like HDFC caution about asset-liability mismatches and operational costs, given the low interest rates (3-4%) likely for such brief tenures. The proposal includes safeguards, requiring banks to maintain adequate liquidity coverage ratios. Economists on X predict the change could spur deposit inflows, particularly in urban centers, but rural adoption may lag due to digital access gaps. If implemented, this reform could reshape India’s banking landscape, offering savers new tools while challenging banks to adapt swiftly to dynamic financial demands.