What changed
The minimum maturity period for Certificates of Deposit (CDs) was reduced from 15 days to 7 days. This change was announced in the annual policy statement for 2005-06 and took effect immediately.
What it means for you
Banks can now issue CDs with maturities as short as 7 days, enabling finer tuning of liquidity management. This also opens up a new short-term investment avenue for corporate and institutional investors, potentially increasing demand for CDs. Lenders may see a shift in short-term deposit preferences as CDs become more competitive with other money market instruments.
What you must do
- Update your CD issuance guidelines and systems to reflect the new 7-day minimum maturity.
- Review your liquidity management strategy to leverage shorter-duration CDs for better asset-liability matching.
- Communicate the change to your treasury and product teams to align with the revised regulatory framework.
- Assess the impact on your short-term funding costs and investor demand for 7-day CDs.
Who it affects
Scheduled commercial banks (excluding RRBs and LABs), Treasury departments of banks, Corporate and institutional investors in money market instruments
What is the new minimum maturity for CDs?
The minimum maturity period for Certificates of Deposit has been reduced from 15 days to 7 days, effective from April 28, 2005.
Which banks are affected by this change?
All scheduled commercial banks, excluding Regional Rural Banks (RRBs) and Local Area Banks (LABs), are covered by this circular.
Why did RBI reduce the minimum maturity?
The reduction was part of the annual policy review for 2005-06, aimed at providing greater flexibility in short-term fund management and deepening the money market.