RBI Allows Differential Interest Rates on Bulk Deposits, Giving Banks Greater Flexibility in Liquidity Management
The Reserve Bank of India (RBI) has permitted banks to offer differential interest rates on bulk deposits by taking into account the liquidity risk associated with different categories of depositors. The move marks a significant change in deposit pricing, enabling lenders to align interest rates with the Liquidity Coverage Ratio (LCR) framework while strengthening their overall liquidity management practices.
Under the revised framework, banks will now be able to differentiate interest rates on bulk deposits based on the applicable run-off rates prescribed under the LCR norms. Deposits that are considered more stable from a liquidity perspective may be priced differently from those carrying a higher probability of withdrawal during periods of financial stress. However, the RBI has made it clear that banks cannot discriminate between deposits of the same size and with identical characteristics. Equal treatment must continue to be ensured for similar depositors.
The central bank has also strengthened transparency requirements by directing banks to publish their deposit interest rate schedules on their official websites before the commencement of each business day. This is expected to provide depositors with timely information and improve transparency in the pricing of deposit products. Banks have also been advised to maintain Board-approved policies governing differential interest rates, ensuring that pricing remains reasonable, transparent and subject to regulatory supervision.
The new policy comes at a time when Indian banks are facing heightened competition for deposits amid robust credit growth and increasing funding costs. Many lenders have relied more heavily on bulk deposits and wholesale funding to support loan growth, making efficient liquidity management a priority. By linking deposit pricing to liquidity risk, the RBI aims to provide banks with greater flexibility in attracting stable funds while accurately reflecting the cost of maintaining regulatory liquidity buffers.
The RBI has also provided banks additional time to operationalise the revised norms. Following representations from the banking industry, the implementation deadline has been extended, with the new framework scheduled to come into force from October 1, 2026. The extension is intended to give banks sufficient time to update their internal systems, pricing models and operational processes before the revised regulations become effective.
Financial experts believe the revised framework could encourage more scientific pricing of large deposits and strengthen banks’ resilience during periods of market volatility. Since bulk deposits often represent significant funding sources, linking interest rates to liquidity characteristics is expected to improve risk management while preserving fairness for depositors through the RBI’s anti-discrimination safeguards. The reform also aligns India’s banking regulations more closely with global liquidity management practices and reinforces the central bank’s broader objective of maintaining financial stability.
