In a recent circular dated October 26, 2023, the Reserve Bank of India (RBI) made significant changes to its guidelines on non-callable deposits, impacting both domestic and Non-Resident (External) Rupee (NRE) Deposits as well as Ordinary Non-Resident (NRO) Deposits. Let’s break down the key points in simple language.
Introduction: The circular, labeled RBI/2023-24/74, falls under the Department of Regulation and is applicable to all Commercial Banks and Co-operative Banks.
Non-Callable Deposits: What’s Changing? The RBI has revised the minimum amount for offering non-callable Term Deposits (TDs). Previously set at Rs. 15 lakhs, this limit has now been increased to Rs. 1 crore. This means that all domestic term deposits accepted from individuals for amounts of Rs. 1 crore and below will now have a premature withdrawal facility.
Applicability: The circular applies to all Commercial Banks and Co-operative Banks, and the changes come into effect immediately.
Why the Change? The RBI, in its circular, mentions a review that led to the decision. The banks were initially allowed to offer term deposits without a premature withdrawal option. However, the recent change ensures that all term deposits accepted from individuals up to Rs. 1 crore will have the flexibility of premature withdrawal.
Impact on NRE/NRO Deposits: The revised guidelines also extend to Non-Resident (External) Rupee (NRE) Deposits and Ordinary Non-Resident (NRO) Deposits. The circular states that the non-callability of deposits (no premature withdrawal option) can now be offered on NRE/NRO term deposits. Still, all NRE/NRO term deposits accepted from individuals for amounts of Rs. 1 crore and below shall have a premature withdrawal facility.
Changes in the Master Direction: The circular amends certain sections of the Master Direction on Interest Rate on Deposits, both for Commercial Banks and Co-operative Banks.
- Amendment to Section 7(a)(iii):
- Previous Provision: Banks had the freedom to offer term deposits without a premature withdrawal option, but with a condition for deposits up to Rs. 15 lakhs.
- Amended Provision: The revised limit is now Rs. 1 crore, ensuring premature withdrawal facility for deposits up to this amount.
- Amendment to Section 15(c):
- Previous Provision: This section detailed the reasons for varying interest rates on NRE/NRO term deposits, focusing on tenor, size, and bulk deposits.
- Amended Provision: In addition to tenor and size, the non-availability of a premature withdrawal option is now a factor. All NRE/NRO term deposits accepted up to Rs. 1 crore will have a premature withdrawal facility.
- Changes in Co-operative Banks’ Master Direction: Similar amendments were made to the Master Direction for Co-operative Banks, aligning their guidelines with those of Commercial Banks.
Conclusion: If you hold term deposits or are considering them, be aware of these changes. The RBI’s move aims to strike a balance between offering flexibility to depositors and ensuring a stable financial environment. Always stay informed and consult with your bank for specific details regarding these changes in deposit regulations.
This update ensures that individuals have the option to withdraw their funds prematurely for deposits up to Rs. 1 crore, providing a degree of flexibility while maintaining the stability of the financial system.
