Mumbai: IDBI Bank, on 22 August, became the first lender to come out with a floating rate deposit product after the Reserve Bank of India nudged banks to switch to such mode of deposits in July.

“Our bank’s FRTD (floating rate interest on retail term deposits) would allow our customers to take advantage of interest rate changes without closing and re-booking their fixed deposits,” IDBI Bank Chairman and Managing Director R. M. Malla said in a statement.

This is not the first time that any bank has launched such a product. Country’s largest lender State Bank of India had, in fact, experimented with such a product, only to be met with a poor response in the past and then scrapped it.

“Customers will not like to start a floating rate deposit when rates go down, while the bank will be wary of launching such a product in a scenario of rising rates,” an SBI official had explained as the reason for discontinuing the offer early this month.

The RBI, which is widely expected to soften its elevated interest rates going ahead, wants the banks to explore the product as it can help banks smoothen out their asset liability mismatches as lenders carry higher interest rate deposits for a longer period.

RBI Governor D. Subbarao had discussed the possibility of launching such a product with bank chiefs at the customary post-policy meeting on July 31.

The IDBI product entails a minimum deposit of 10,000 or in multiples of 1,000 up to a maximum of 1 crore. The interest rate on the deposit will move in tandem with a reference rate to be readjusted on a quarterly basis, a bank statement said.

The reference rate would be arrived at as per the average yield on a 364-day Treasury bill auctions undertaken by RBI during the three months period, it added.

The deposit has a minimum one-year lock-in period and is available in six maturity slabs ranging up to 10 years.

IDBI Bank’s fixed interest rate depositors have the liberty to move their deposit to the floating interest rate without any penalties, it said, stressing that the reverse is not allowed.

The product is expected to appeal to those retail depositors who, having borrowed at floating rates are exposed to interest rate risks, the bank said.