IDBI offers floating rate fixed deposits
By Neelima Shankar
Aug 23, 2012
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Leading public sector bank IDBI Bank has announced the launch of its floating interest rate fixed deposit for the retail customers. The product would be called Floating Interest Rate Term Deposit (FRTD).

Unlike the contemporary term deposits, which offer a fixed rate of return, returns on FRTD would depend on the reference rate, which is the quarterly average of the yield of 364 Days T-Bill auctioned by the RBI.

"The interest rate in case of FRTD is anchored to a transparent, market-based rupee benchmark rate." The bank would revise the interest rates on these deposits every three months.

Customers can deposit a mimimum of Rs. 10,000 further adding multiples of Rs. 1,000 upto a maximum of Rs. 1 crore. The maturity period offered for FRTD would range from a minimum of 1 year upto a maximum of 10 years.

Existing customers with fixed interest rates term deposits would be allowed to convert to FRTD by closing their FD without any penalty. However the reverse would not be allowed.

The move to offer such product comes on account of RBI's directives to the banks at the first quarter review of monetary policy last month. RBI had said that offering such deposits would be good for the bank's balance sheet.

IDBI feels that such kind of deposits would be hit with customers who want to hedge against their floating rate borrowings and those who want to leverage the upward fluctuation in interest rates. Also this would reduce the interest rate risk for consumers who deposit in fixed rates, but borrow fluctuating rates (home loan/car loan).

Previously SBI had released floating rate term deposits in 2001 and 2010, but it was not very successful, but IDBI is confident of its approach and hopes to strike a note with the consumer.

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