New FD Rule: Bank FD (Fixed Deposit) is a highly popular and preferred means of investment in India. After all, it offers a great combination of both fixed interest and security of money. Usually people get FDs done from 1 year to 10 years, but do you know that the minimum period of bank FD is seven days.
And now the Reserve Bank of India (RBI) is considering bringing FD of less than 7 days. RBI has sought suggestions from banks in this regard. This can be a historic step which will give a new opportunity to earn interest while keeping your money safe even for a short period. Let’s delve deeper into this proposed change and understand what it means for you and the banks.
Why is RBI bringing a new change
According to media reports, the Reserve Bank of India (RBI) has sought suggestions from banks regarding ‘term deposits’ of less than 7 days. RBI is making this change at a time when concerns are increasing about the deposit growth of banks.
In fact, by May 2, 2025, the deposit growth of banks on an annual basis has come down to 10% (10%), whereas a year ago it was 13% (13%). This means that people are depositing less money in banks than before, which can be a matter of concern for the economy. RBI wants to boost deposits in banks with this step, so that liquidity remains in the system.
FD duration has changed before too
.RBI made an important change in the duration of bank FD in the year 2004. Then RBI reduced the minimum duration of term deposit from 15 days to 7 days. Now once again RBI is considering another change, which shows that the central bank keeps amending the rules from time to time according to market needs and economic conditions.
People associated with the matter said that banks can soon submit their suggestions to RBI regarding term deposit. A senior bank official told that last month RBI had a meeting with SBI and Punjab National Bank as well as other private banks on this issue. This shows that RBI is taking this issue quite seriously and is giving importance to banks’ opinions.
Both support and objection of banks
The bank official told that this step of RBI will give freedom to banks to decide the duration of FD as per their convenience. They believe that this can give a further boost to fixed deposits, and increasing the number of FDs will also increase the liquidity of banks. That is, banks will have more money available to lend to people. This can be a big win for banks as they will get more flexibility in meeting their funding requirements.
However, some banks have also objected to the proposal of bank FDs of less than 7 days duration! Their main concern is Asset Liability Mismatch (ALM). This means that if banks accept deposits for very short duration and give them in long term loans, they may have liquidity problems.
An official of a public sector bank said that FDs of less than 7 days can be beneficial for those companies which want better returns on their excess funds for a short period of time, but it will be difficult for banks to find ways for such short-tenure loans. This shows that there are some practical challenges of this change which will have to be taken care of.