Non-Callable Deposits – Master Direction on Interest Rate on Deposits

In a move to revamp deposit-related regulations, the Reserve Bank of India (RBI) has introduced significant changes to non-callable deposits, impacting both domestic term deposits and Non-Resident (External) Rupee (NRE) Deposit / Ordinary Non-Resident (NRO) Deposits. The RBI’s directive, outlined in Circular RBI/2023-24/74, aims to enhance the banking landscape by adjusting the minimum amount for non-callable deposits. Let’s delve into the detailed analysis of these changes.

Detailed Analysis

The Master Direction on Interest Rate on Deposits, dated March 03, 2016, and the Master Direction – Reserve Bank of India (Co-operative Banks – Interest Rate on Deposits) Directions, 2016, released on May 12, 2016, previously stipulated that banks could offer term deposits without a premature withdrawal option. However, all term deposits accepted from individuals for amounts of Rupees fifteen lakh and below were required to provide a premature withdrawal facility.

Under the revised provisions, the RBI has made the following amendments:

1. Minimum Amount Increase: The minimum amount for offering non-callable term deposits has been raised from Rupees fifteen lakh to Rupees one crore. This means that all domestic term deposits accepted from individuals for amounts of Rupees one crore and below must provide a premature withdrawal facility.

2. Extension to NRE/NRO Deposits: The revised instructions are not limited to domestic term deposits. They also apply to Non-Resident (External) Rupee (NRE) Deposit and Ordinary Non-Resident (NRO) Deposits. Similar to domestic term deposits, all NRE/NRO term deposits accepted from individuals for amounts of Rupees one crore and below must have a premature withdrawal facility.

These changes reflect the RBI’s ongoing efforts to fine-tune the regulatory framework governing deposits and provide enhanced flexibility while safeguarding the interests of depositors.

Conclusion

The RBI’s decision to increase the minimum amount for non-callable deposits from Rupees fifteen lakh to Rupees one crore signifies a pivotal adjustment in deposit regulations. This change impacts not only domestic term deposits but also Non-Resident (External) Rupee (NRE) Deposit and Ordinary Non-Resident (NRO) Deposits. By doing so, the RBI aims to maintain a balance between providing flexibility to banks and safeguarding the interests of depositors, ensuring a fair and robust banking environment. These instructions, which come into effect immediately, will have a notable impact on the banking sector and the management of term deposits.

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Reserve Bank of India

Non-Callable Deposits – Master Direction on Interest Rate on Deposits

RBI/2023-24/74
DOR.SPE. REC. No 51/13.03.000/2023-24

October 26, 2023

Non-Callable Deposits – Master Direction on Interest Rate on Deposits

Please refer to the instructions contained in Section 7 of the Master Direction (MD) on Interest Rate on Deposits dated March 03, 2016 and Master Direction – Reserve Bank of India (Co-operative Banks – Interest Rate on Deposits) Directions, 2016 dated May 12, 2016. In terms of these instructions, banks have been permitted to offer domestic term deposits (TDs) without premature withdrawal option, provided that all TDs accepted from individuals for an amount of Rupees fifteen lakh and below shall have premature-withdrawal-facility. Further, the banks have also been permitted to offer differential rate on interest on TDs based on non-callability of deposits (i.e., non-availability of premature withdrawal option) in addition to tenor and size of deposits.

2. On a review, it has been decided that (i) the minimum amount for offering non-callable TDs may be increased from Rupees fifteen lakh to Rupees one crore i.e., all domestic term deposits accepted from individuals for amount of Rupees one crore and below shall have premature-withdrawal-facility and (ii) these instructions shall also be applicable for Non-Resident (External) Rupee (NRE) Deposit / Ordinary Non-Resident (NRO) Deposits.

3. Accordingly, the relevant sections of the Master Direction have been amended as indicated in the Annex.

4. All other instructions shall remain unchanged.

Applicability

5. This circular is applicable to all Commercial Banks and Co-operative Banks.

6. These instructions shall come into force with immediate effect.

Yours faithfully,

(Sunil T S Nair)
Chief General Manager

ANNEX

[Encl. to circular DOR.SOG(SPE).REC.No 51/13.03.00/2023-24 dated October 26, 2023]

Master Direction – Reserve Bank of India (Interest Rate on Deposits) Directions, 2016 dated March 03, 2016

Master Direction – Reserve Bank of India (Co-operative Banks – Interest Rate on Deposits) Directions, 2016 dated May 12, 2016