The Reserve Bank of India has to ensure that banks price their products and services aligining with market environment. Consumers expect stability in service charges and the banks to absorb market shocks.

Indian Banks had been pricing their products and services as per the directive of their regulatory authority - the Reserve Bank of India (RBI). It was a regime of administered prices and banks made no efforts to study the market or the cost structure of their operations to comprehend and evaluate how far the price fixed by the RBI was in consonance with market demand and their cost burden. However, this obviously changed when deregulation was announced by the RBI. This enabled the banks to fix their rates based on some referral rates which were to be decided by the boards of each bank.

Upto and Inclusive of Rs. 2 lakhs: Not exceeding Prime Lending Rate (PLR) as approved by the Board. Over Rs. 2 lakhs: Banks have been given liberty to fix the rate subject to PLR and the spread decided by the board. Banks have been authorized to charge below PLR to exporters and high-rated borrowers.

However, interest rates on all term deposits are currently free and banks have now offered an array of rates across maturities of 15 days and above which is the present norm of maturity for domestic term deposits. This norm has been relaxed to seven days for single term deposits of Rs. 15 lakhs and above. In these deposits, banks have been given freedom to offer differential rate of interest depending upon the size of the deposits. This has been allowed to enable them to have needed flexibility in their asset liability management. But, the stipulation of minimum maturity of 15 days for certificate of deposits and commercial papers has been kept intact. Further, the present guideline has also emphatically stated that banks should not discriminate in the matter of fixing rates of interest on deposits for different categories of customers except the exception granted for deposits of Rs. 15 lakhs and above for a maturity period of seven days. However, banks have been allowed to provide a higher rate in case of the senior citizens.

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