In a welcome move for term deposit holders, the Reserve Bank of India (RBI) has introduced a new rule regarding the premature withdrawal of fixed deposits. This rule change specifically affects non-callable fixed deposits, offering increased liquidity options for depositors with a ceiling of up to Rs 1 crore. The previous limit was Rs 15 lakh. This adjustment has the potential to provide added financial flexibility for investors facing cash constraints.
Understanding Callable and Non-Callable Deposits
Banks offer two primary types of fixed deposits – callable and non-callable. Callable deposits allow depositors to make premature withdrawals, while non-callable deposits do not offer this option. The recent alteration by the RBI, increasing the limit for non-callable FDs from Rs 15 lakh to Rs 1 crore, provides individuals with the ability to access their funds before the maturity date as per the initial agreement.
In an official circular, the Reserve Bank stated, “On a review, it has been decided that the minimum amount for offering non-callable term deposits (TDs) may be increased from Rs 15 lakh to Rs 1 crore.” This means that all domestic term deposits accepted from individuals for amounts of Rs 1 crore and below should now have a premature withdrawal facility.
According to a report by PTI, banks are also now permitted to offer differential interest rates on TDs based on the non-callability of deposits, in addition to the tenor and size of the deposits. Differential interest rates are typically offered on bulk deposits.
The RBI’s new instructions also apply to Non-Resident (External) Rupee (NRE) Deposits and Ordinary Non-Resident (NRO) Deposits. Banks now have the freedom to offer NRE/NRO term deposits without a premature withdrawal option, with the caveat that all NRE/NRO term deposits accepted from individuals, whether held singly or jointly, for amounts of Rs 1 crore and below must have a premature withdrawal facility.
These new rules are applicable to all commercial banks and co-operative banks and have come into effect immediately.
In another circular, the RBI has also increased the ‘bulk deposit’ limit for Regional Rural Banks (RRBs) to Rs 1 crore and above, up from the previous limit of Rs 15 lakh and above. In the case of commercial banks and small savings banks, deposits of Rs 2 crore and above are categorized as ‘bulk deposits.’
