The Reserve Bank of India on Thursday allowed banks to offer differential interest rates on term deposits for the tenor for deposits less than Rs 1 crore and on the basis of quantum and tenor on term deposits of Rs 1 crore and above.

Also, the RBI said that it was decided to introduce the feature of early withdrawal facility in a term deposit as a distinguishing feature for offering differential rates of interest.

Accordingly, banks will have the discretion to offer differential interest rates based on whether the term deposits are with or without-premature-withdrawal-facility, subject to the following guidelines:

All term deposits of individuals of Rs 15 lakh and below should, necessarily, have premature withdrawal facility.

Banks can also offer deposits without the option of premature withdrawal as well.

However, banks offering term deposits can also provide customers the option to choose between term deposits either with or without premature withdrawal facility.

Banks should disclose in advance the schedule of interest rates payable on deposits i.e. all deposits mobilized by banks should be strictly in conformity with the published schedule.

The banks should have a Board approved policy with regard to interest rates on deposits including deposits with differential rates of interest and ensure that the interest rates offered are reasonable, consistent, transparent and available for supervisory review/scrutiny as and when required.

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