Restrictions On Deposit Size Must Go

The Khan committee has recommended that the maturity ceiling of five years on deposits from the public, the capping of interest rate on deposits of DFIs at interest rates offered by the State Bank of India for similar maturities, and restrictions relating to minimum size of deposits that may be accepted by DFIs be removed.

At present financial institutions are at a disadvantage since they are unable to raise low cost deposit of varying maturity as in case of the banking sector.

Further, as an interim measure, the panel has suggested that a suitable level of SLR may be stipulated for DFIs on incremental outstanding fixed deposits raised from the public (excluding inter-bank deposits). As a long-term measure, the group has suggested phasing out of SLR altogether.

At present, various restrictions on resource mobilisation have eventually contributed towards increased cost of long-term finance for clients. More recently, the RBI has stipulated that bond issues by DFIs with either a maturity of less than 5 years or maturity of 5 years and above but with interest rate exceeding 200 basis points over the yield on Government of India securities of equal residual maturity would require its prior approval.