The Reserve Bank of India (RBI) is considering a proposal that would permit banks to provide shorter timelines on term deposits. The changes to the fixed deposit framework are slated to improve cash liquidity in a system grappling with stagnating deposit growth.
Sources confirm that the central bank has sought feedback from banks on the feasibility and implications of such a measure, with responses expected by the end of May 2025.
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Term deposits, more commonly known as fixed deposits (FDs) are savings mechanisms offered by banks on which an interest amount shall accrue over a predetermined duration. FDs are popular among retail customers and corporate entities alike due to the predictability of returns that may be receivable by depositors.
The minimum term period for term deposits was initially 15 days, which was reduced by RBI to the current minimum term of seven days in 2004. The new proposal under discussion could further ease this restriction, potentially allowing banks to decide deposit durations based on market dynamics and depositor preferences, however the RBI is yet to provide a statement on this aspect.
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Reports from May 2025 show that the deposit growth, which stood at 13% in the previous year has now dropped to 10%. The key intent behind such an idea is to enhance the public’s interest towards fixed deposits while bolstering liquidity in the banking system.
Preliminary consultations have already taken place with prominent public and private sector lenders, including the State Bank of India, Punjab National Bank, and Axis Bank. While some banks have welcomed the proposal as a step toward more flexible and competitive deposit products, others have flagged significant concerns – primarily regarding the risk of asset-liability mismatches (ALM). ALM risk occurs when short-term liabilities like ultra-short deposits are used to fund long-tenure loans, raising the spectre of liquidity shortfalls.
One of the concerns raised was that deposits with shorter maturity timelines would appeal to corporates seeking quick returns on surplus funds, but may not align with banks’ existing lending structures and financial roadmap, considering the fact that majority of the short term deposits are used for forex transactions.
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The Indian Banks’ Association (IBA) is expected to submit consolidated feedback on the proposal by month-end after wider industry consultations. The sub-seven-day proposal is still under scrutiny, and its broader implications on liquidity, credit operations, and systemic stability are matters requiring extensive deliberation.
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