5

Currently fixed deposit (FD) rates in India are around 9% p.a with various Indian banks. I have observed that there are tenure brackets which start from 7 days till 5 years. There is always a bracket where interest rates peak which is 390 days. What is logic of having peak interest rates at 390 days? Why not any other tenure?

  • 1
    I didn't realize yields in India were so high! Typically this would relate to the bond yield curve which relates to the future expectations about rates. – Guy Sirton Jul 6 '14 at 18:21
  • 1
  • But why 390 days.. Is there something specific about this number? Is there any specific event linked to this? – vicks1 Jul 7 '14 at 11:51
  • 1
    @GuySirton inflation in India is also very high compared to current levels in western countries. It's really not any better of a deal than you'd get for a short term CD where you live. – Dan Neely Jul 7 '14 at 23:45
1

I have been trying to figure this mystery around 390 days for sometime and finally came across this article on mystery of odd FD tenures

It seems that this is linked to loan cycle for the banks -

These time periods are meant to match the bank's asset and liability in a particular bucket. Say, it has higher demand for one-year loans, then it will offer a 390-day deposit. Similarly, the 700-day deposits are meant to match the asset and liability for two-year loans.

Simply put, banks are ensuring they have money to give loans by extending the tenure of matching FDs. As the FDs mature a little later, it gives them more breathing space to get the money back from the borrowers and return it to the depositors.

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.