Allow premature withdrawal on term deposits of up to Rs 1 cr: RBI to banks

Mumbai: The Reserve Bank on Thursday said banks will have to offer premature withdrawal facility on all term deposits of up to Rs 1 crore, raising the limit from Rs 15 lakh currently.

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 Rs 15 lakh and below should have premature withdrawal facility.

"On a review, it has been decided that the minimum amount for offering non-callable TDs may be increased from Rs 15 lakh to Rs 1 crore" meaning all domestic term deposits accepted from individuals for amount of Rs 1 crore and below should have premature-withdrawal-facility, the Reserve Bank said in a circular.

Further, as per the extant norms, the banks have also been permitted to offer differential rate on interest on TDs based on non-callability of deposits (non-availability of premature withdrawal option) in addition to tenor and size of deposits.

Differential interest rate are offered only on bulk deposits.

The latest instructions will also be applicable for Non-Resident (External) Rupee (NRE) Deposit/ Ordinary Non-Resident (NRO) Deposits, the central bank said.

"Banks shall have the freedom to offer NRE/ NRO term deposits without premature withdrawal option, provided that all NRE/ NRO term deposits accepted from individuals (held singly or jointly) for amount of Rs 1 crore and below shall have premature-withdrawal-facility," it said.

The instructions are applicable to all commercial banks and co-operative banks, and have come into force with immediate effect.

In another circular, the RBI said the 'bulk deposit' limit for Regional Rural Banks (RRBs) has been enhanced to Rs 1 crore and above, from the existing Rs 15 lakh and above.

Deposits of Rs 2 crore and above are termed as 'bulk deposits' in case of commercial banks and small savings banks.