MUMBAI: Wide variation in banks' retail and bulk deposit rates is undesirable, and banks should be discouraged from offering sharply different rates on deposits with very little difference in maturities, a deputy central banker said on Monday.
"If it (the difference between retail and bulk deposit rates) varies too much, then there is something wrong," said Reserve Bank ofIndiaDeputy Governor K.C. Chakrabarty on the sidelines of a banking event.
Indian banks have been offering substantially higher rates on wholesale deposits, also known as certificates of deposit (CD), to shore up their balance sheets in the quarter to end- March, which also marks the end of the 2011/12 fiscal year.
The three-month deposit rate is now at around 11 percent, much higher than a similar tenure retail deposit at around 7 percent.
Despite a reduction in banks' cash reserve ratio (CRR), the share of deposits that banks must hold with the central bank, on March 9, CD rates have remained close to more than a three-year high as banks continued to raise CDs aggressively for meeting their quarter-end deposit growth target.
Copyright Reuters, 2012
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