Banks Seek Nod To Refuse Early Closure Of Fds

Commercial banks have sought the Reserve Bank of Indias (RBI) clearance to refuse premature closure of fixed deposits (FDs) in order to prevent withdrawals of fixed deposits by the corporate sector.

Inclusive of public sector undertakings, the banks are holding a substantial amount of fixed deposits for the corporate sector. With the tight money situation leading to zooming interest rates, corporates are finding it profitable to subscribe to certificates of deposit issued by the banks at 18 - 20 per cent and treasury bills at yields of 22 - 25 per cent instead of continuing with the fixed deposits which give them an interest of about 8 - 10 per cent.

 

A majority of the deposits being closed are those which were maturing in the coming 2 - 3 months. Also, a lot of deposits of longer maturities are being prematurely closed in favour of high yielding instruments. Bankers say banks are finding themselves in a very tight corner where they are replacing liabilities with a cost of 8 - 10 per cent with ones which will cost them more than twice the amount.

Even returning these deposits could be difficult, say bankers, because the securities held by them are presently quoting at a heavy discount to the offer price at which they were bought.