Sir, please make a FD of just Rs.5000

While we as customers are indifferent to make small FDs just to get rid of the constant follow-ups from the bank executives, this simple idea could actually be an excavator of a goldmine for the bank

I am sure you would have got such requests from your relationship manager almost every week if you are a HDFC Bank customer (I am a HDFC bank customer and I am not aware if the other banks are doing this too).

This request usually followed with the statement, “Sir Rs.5000 is nothing for you. It won’t really matter to you, but it will help us map your relationship with the bank better“. Once in my frustration, I asked "your bank is actually so huge, what difference does Rs.5000 make to your bank?"

Then it got me thinking, HDFC bank has such a huge customer base, they are practically sitting on a goldmine waiting to be explored. If they are able to convince enough people to open a FD for up to Rs.5000:

- they are opening a new avenue for raising capital which has a fixed tenure compared to their CASA (current account savings account) book. Banks always love it when they exactly know the timings of their inflow and outflows. It makes their businesses safer and lives easier.

- they get funds at a decent rate of interest (currently varying between 3% to 6% vs their current interest cost of 4.80%)

- the customers do not mind keeping such small amounts just to get off of the follow-ups. Besides, they have nothing to lose in return of any potential benefit that they may get by 'mapping their relationship with the bank'

- there is a very high probability that customers will not withdraw FDs of such small amounts prematurely since parking these funds isn't hurting their daily lives in the first place.

- in fact, the amount of these FDs is so small that customers wouldn’t even mind reinvesting it for another year.

Out of its customer base that is north of 90 million, even if 5 million customers make a FD of Rs.5000 each, the bank gets a capital of 2500 crores with a fixed duration.

The benefits that FDs bring for the bank are

1. Banks can use funds from FDs to lend to other customers while maintaining a stable source of funding.

2. Banks get a soft commitment from their customers opening FDs that they will remain their customers for a foreseeable time.

3. Banks can use FDs to manage their liquidity requirements. They can offer higher interest rates on FDs to attract deposits when they need more liquidity, and lower interest rates when they have excess liquidity.

4. Banks can use the information provided by customers while opening an FD account to understand their financial needs and preferences.

5. FDs are considered a part of Tier 1 capital, which is a core capital held in bank's reserves and is used to fund the business activities for the banks clients. This helps banks maintain their financial stability and absorb losses without threatening the operations of the bank.

6. Similar to their CASA book, this form a part of cash reserve ratio (CRR) and statutory liquidity ratio (SLR) that need to be maintained by the bank as per the rates set by RBI. Since the deposits made through FDs are fixed and have a longer tenure, and they are always preferred over any regular deposits.

Weather this is really a master plan or something that took such humongous shape unintentionally, it will certainly benefit the bank significantly and help them grow their business freely while making customers happy by offering slightly higher interest rates than their savings account.

Disclaimer: this article is just a means to pen down my thoughts about a possibility. Whether this is a really a plan of HDFC Bank or any other bank or just a castle made out of my imagination, the magnitude of it is noteworthy. I do not intend to market any products of HDFC bank or the shares of this company by the means of this article.