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March 18, 2002 | 1540 IST
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RBI to allow floating rates on term deposit schemes, G-Secs

The Reserve Bank of India is likely to allow "floating" interest rates on term deposit scheme of banks, and government securities in the next fiscal.

"Both borrowing and deposit should have floating interest rates. There will, however, be options for depositors to opt for either fixed or floating interest rates," a senior RBI official said in New Delhi on Monday.

There has been a demand from commercial banks for flexible rates on deposits to avert interest rate risks and asset-liability mismatches.

RBI had allowed banks to lend at floating or flexible interest rates to corporates a few years ago but deposit rates are still rigid.

While savings bank account offers a 4.0 per cent return to depositors, a term deposit scheme of three-year maturity offers a higher 8.0 per cent interest rate.

The official said the proposed floating rate schemes are likely to attach a "premium" or "discount" depending on the long-term movement of the bank rate at which RBI lends funds to the banks.

"When interest rates are expected to come down, then the fixed rates will be lower than the floating rate on term deposit scheme," the RBI official said.

RBI would allow banks to revise the floating rate every six months.

Some of the banks like State Bank of India are already planning to introduce the floating term deposit scheme once the green signal is obtained from RBI.

The Rediff Budget Special

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