How the process started - Deregulation of interest rates

The process of deregulation of interest rates was resumed in April 1992 when the existing maturity-wise prescriptions were replaced by a single ceiling rate of 13 per cent for all deposits above 46 days.The ceiling rate was brought down to 10 per cent in November 1994, but was raised to 12 per cent in April 1995. Banks were allowed to fix the interest rates on deposits with maturity of over two years in October 1995, which was further relaxed to maturity of over one year in July 1996.

The ceiling rate for deposits of 30 days and up to one year was linked to the Bank Rate less 200 basis points in April 1997.In October 1997, deposit rates were fully deregulated by removing the linkage to the Bank Rate. Consequently, the Reserve Bank gave the freedom to commercial banks to fix their own interest rates on domestic term deposits of various maturities with the prior approval of their respective board of directors/asset liability management committee (ALCO). 

Banks were permitted to determine their own penal interest rates for premature withdrawal of domestic term deposits and the restriction on banks that they must offer the same rate on deposits of the same maturity irrespective of the size of deposits was removed in respect of deposits of Rs.15 lakh and above in April 1998.

Courtesy : The Hindu