According to a recent press repots loans against bank fixed deposits are gaining traction. As per the data released by the RBI, these loans jumped by about 25 per cent in April 2011, against about 3 per cent in April 2010. The loans against bank deposits went up by Rs 11,966 crore between April 23, 2010 and April 22, 2011, against just Rs 1,286 crore between April 24, 2009 and April 23, 2010.
Bankers have suggested that the bank customers who have Fixed Deposits contracted at a lower interest rate in the last few years, could find it advantageous to take loans against these deposits for emergencies and to tide over temporary liquidity mismatches, say bankers.
For example if a depositor who holds a five-year FD two years back at a rate of 8 per cent, then he can get a loan against the deposit at 10 per cent, that is, 200 basis points over the deposit rate. Reports have suggested that loans against FDs are a cheaper option as compared to personal loan (on which banks charge interest rates north of 18 per cent).
A senior official of Union Bank of India told the press that the net outgo for the borrower is only 2 per cent in the case of loans against FDs. So, instead of breaking his FD, he could take a loan against it.