Introduction
Certificates
of Deposit (CDs) is a negotiable money market instrument and issued in dematerialised
form or as a Usance Promissory Note, for funds deposited at a bank or other eligible
financial institution for a specified time period. Guidelines for issue of CDs
are presently governed by various directives issued by the Reserve Bank of India,
as amended from time to time. The guidelines for issue of CDs incorporating all
the amendments issued till date are given below for ready reference.
Eligibility
2.
CDs can be issued by (i) scheduled commercial banks excluding Regional Rural Banks
(RRBs) and Local Area Banks (LABs); and (ii) select all-India Financial Institutions
that have been permitted by RBI to raise short-term resources within the umbrella
limit fixed by RBI.
Aggregate
Amount
3. Banks have the
freedom to issue CDs depending on their requirements.
4.
An FI may issue CDs within the overall umbrella limit fixed by RBI, i.e., issue
of CD together with other instruments, viz., term money, term deposits,
commercial papers and inter-corporate deposits should not exceed 100 per cent
of its net owned funds, as per the latest audited balance sheet.
Minimum
Size of Issue and Denominations
5.
Minimum amount of a CD should be Rs.1 lakh, i.e., the minimum deposit that could
be accepted from a single subscriber should not be less than Rs. 1 lakh and in
the multiples of Rs. 1 lakh thereafter.
Who
can Subscribe
6. CDs can be issued
to individuals, corporations, companies, trusts, funds, associations, etc. Non-Resident
Indians (NRIs) may also subscribe to CDs, but only on non-repatriable basis which
should be clearly stated on the Certificate. Such CDs cannot be endorsed to another
NRI in the secondary market.
Maturity
7.
The maturity period of CDs issued by banks should be not less than 7 days and
not more than one year.
8. The FIs
can issue CDs for a period not less than 1 year and not exceeding 3 years from
the date of issue.
Discount/
Coupon Rate
9. CDs may be issued
at a discount on face value. Banks/FIs are also allowed to issue CDs on floating
rate basis provided the methodology of compiling the floating rate is objective,
transparent and market-based. The issuing bank/FI is free to determine the discount/coupon
rate. The interest rate on floating rate CDs would have to be reset periodically
in accordance with a pre-determined formula that indicates the spread over a transparent
benchmark.
Reserve
Requirements
10. Banks have
to maintain the appropriate reserve requirements, i.e., cash reserve ratio (CRR)
and statutory liquidity ratio (SLR), on the issue price of the CDs.
Transferability
11.
Physical CDs are freely transferable by endorsement and delivery. Dematted CDs
can be transferred as per the procedure applicable to other demat securities.
There is no lock-in period for the CDs.
Loans/Buy-backs
12.
Banks/FIs cannot grant loans against CDs. Furthermore, they cannot buy-back their
own CDs before maturity.
Format
of CDs
13. Banks/FIs should issue
CDs only in the dematerialised form. However, according to the Depositories Act,
1996, investors have the option to seek certificate in physical form. Accordingly,
if investor insists on physical certificate, the bank/FI may inform the Chief
General Manager, Financial Markets Department, Reserve Bank of India, Central
Office, Fort, Mumbai - 400 001 about such instances separately. Further, issuance
of CDs will attract stamp duty. A format (Annex I) is enclosed for adoption by
banks/FIs. There will be no grace period for repayment of CDs. If the maturity
date happens to be holiday, the issuing bank should make payment on the immediate
preceding working day. Banks/FIs may, therefore, so fix the period of deposit
that the maturity date does not coincide with a holiday to avoid loss of discount
/ interest rate.
Security
Aspect
14. Since physical
CDs are freely transferable by endorsement and delivery, it will be necessary
for banks to see that the certificates are printed on good quality security paper
and necessary precautions are taken to guard against tampering with the document.
They should be signed by two or more authorised signatories.
Payment
of Certificate
15. Since
CDs are transferable, the physical certificate may be presented for payment by
the last holder. The question of liability on account of any defect in the chain
of endorsements may arise. It is, therefore, desirable that banks take necessary
precautions and make payment only by a crossed cheque. Those who deal in these
CDs may also be suitably cautioned.
16.
The holders of dematted CDs will approach their respective depository participants
(DPs) and have to give transfer/delivery instructions to transfer the demat security
represented by the specific ISIN to the ‘CD Redemption Account’ maintained by
the issuer. The holder should also communicate to the issuer by a letter/fax enclosing
the copy of the delivery instruction it had given to its DP and intimate the place
at which the payment is requested to facilitate prompt payment. Upon receipt of
the Demat credit of CDs in the "CD Redemption Account", the issuer,
on maturity date, would arrange to repay to holder/transferor by way of Banker’s
cheque/high value cheque, etc.
Issue
of Duplicate Certificates
17.
In case of the loss of physical certificates, duplicate certificates can
be issued after compliance with the following:
- A notice is required to be given in at least one local
newspaper
- Lapse of a reasonable period (say 15 days) from the
date of the notice in the newspaper; and
- Execution of an indemnity bond
by the investor to the satisfaction of the issuer of CDs.
18.
The duplicate certificate should only be issued in physical form. No fresh stamping
is required as a duplicate certificate is issued against the original lost CD.
The duplicate CD should clearly state that the CD is a Duplicate one stating the
original value date, due date, and the date of issue (as "Duplicate issued
on ________").
Accounting
19. Banks/FIs may account the issue price under the Head "CDs
issued" and show it under deposits. Accounting entries towards discount will
be made as in the case of "cash certificates". Banks/FIs should maintain
a register of CDs issued with complete particulars.
Standardised Market Practices and Documentation
20.
Fixed Income Money Market and Derivatives Association of India (FIMMDA) may prescribe,
in consultation with the RBI, for operational flexibility and smooth functioning
of the CD market, any standardised procedure and documentation that are to be
followed by the participants, in consonance with the international best practices.
Banks/FIs may refer to the detailed guidelines issued by FIMMDA in this regard
on June 20, 2002.
Reporting
21.
Banks should include the amount of CDs in the fortnightly return under Section
42 of the Reserve Bank of India Act, 1934 and also separately indicate the amount
so included by way of a footnote in the return.
22.
Further, banks/FIs should submit a fortnightly return, as per the format given
in Annex II, to the Chief General Manager, Financial Markets Department, Reserve
Bank of India, Central Office Building, Fort, Mumbai – 400 001, Fax ++9122-22634824/22630981
within 10 days from the end of the fortnight date.
Annex
II
Fortnightly Return on
Certificates of Deposit
(CDs)
(SFR III – D)
Name of the Bank/Institution
:
For the Fortnight ended :
Issue
of Certificates of Deposit (CDs)
Total amount of CDs outstanding as at the
end of the fortnight
1. On Discount
Value Basis (Rs. Crore)
Face Value
:
Discounted Value :
2. On
Coupon Bearing Basis (Rs. Crore)
Face Value
:
Particulars of CDs issued during
the fortnight
I. CDs issued on Discount value basis