What changed
RBI observed that some banks launched special term deposit products with lock-in periods (6-12 months) where premature withdrawal was either barred or earned no interest, and interest rates differed from normal deposits. The RBI clarified these schemes are not in conformity with its instructions and must be discontinued immediately.
What it means for you
Banks can no longer offer deposit products that lock in customers for a fixed period without allowing premature withdrawal or paying interest during that period. This ensures uniformity in deposit terms and prevents discrimination among depositors. Non-compliance may attract penalties under the Banking Regulation Act, 1949.
What you must do
- Identify any special term deposit schemes with lock-in periods (6-12 months) and discontinue them immediately.
- Ensure all new deposit schemes comply with RBI directives on interest rates, premature withdrawal, and non-discrimination among deposits of same maturity and date.
- Report compliance to RBI as advised in the circular.
- Review Board-approved deposit schemes to confirm they adhere to Master Circular instructions.
Who it affects
All scheduled commercial banks (excluding RRBs), Bank treasury and product teams, Retail deposit customers
What exactly is a lock-in period in a deposit scheme?
A lock-in period is a fixed duration (e.g., 6-12 months) during which the depositor cannot withdraw the deposit prematurely. If withdrawal is attempted, no interest is paid.
Why did RBI ban these schemes?
These schemes violated RBI's existing directives on interest rates and premature withdrawal, and discriminated between deposits of the same maturity and date. RBI views such violations seriously.
What should banks do if they have already sold such deposits?
Banks must discontinue the schemes immediately and report compliance to RBI. Existing deposits may need to be handled as per RBI's further instructions, but the circular does not specify retroactive changes.