The best option for faster transmission of repo rate reduction could be linking all incremental bulk deposits to be linked to the repo rate, State Bank of India said in a report.
In India, single rupee deposits of Rs 2 crore and above are considered as bulk deposits and banks have discretion to offer differential rate of interest on bulk deposits. The share of bulk deposits in banks’ total deposits could be around 30 per cent after the definitional change. “Needless to say, most of the bulk deposits are from institutions. It is thus logical that large institutions could afford to take interest rate risk as this would spare the retail depositors from taking the same,” the SBI Research report said.
According to the SBI report, one of the reasons why transmission is not happening is that any bank which would take the lead of deposits being market determined, would probably lose meaningful quantum of business as bulk customers would have better bargaining power or would easily switch bank. “However, retail customers can’t really negotiate terms… and so it is easy to implement and let them forego. Hence, banks cannot separately link retail savings only to be linked to repo on liability side of balance sheet of bank,” it said.