What changed
RBI observed that some co-operative banks were offering special term deposits with lock-in periods (6-12 months) where premature withdrawal was either not allowed or resulted in no interest payment, and interest rates differed from normal deposits. The RBI clarified that such schemes are not in conformity with its earlier directives (1987 and 2001) and must be discontinued immediately.
What it means for you
Banks can no longer offer deposit products that lock in customer funds for a fixed period without allowing premature withdrawal or paying interest during that period. This ensures uniformity in deposit interest rates for same-maturity deposits (except for senior citizen schemes and deposits of Rs.15 lakh and above). Non-compliance may attract penalties under the Banking Regulation Act.
What you must do
- Immediately discontinue any special deposit scheme with a lock-in period that restricts premature withdrawal or forfeits interest during that period.
- Review all existing term deposit products to ensure they comply with RBI directives on interest rate uniformity and premature withdrawal rules.
- Report compliance to your respective RBI Regional Office without delay.
- Ensure Board-approved deposit schemes strictly adhere to RBI instructions before launch.
Who it affects
State Co-operative Banks (StCBs), Central Co-operative Banks (DCCBs), All co-operative banks offering special term deposit products
What exactly is a 'lock-in period' deposit scheme that RBI has banned?
It refers to a term deposit where customers cannot withdraw money prematurely for a fixed period (e.g., 6-12 months), and if they do, they get no interest. RBI says such schemes violate its rules on premature withdrawal and interest rate uniformity.
Can we still offer higher interest rates for senior citizens or large deposits?
Yes, the RBI allows higher fixed rates for senior citizens and varying rates for single term deposits of Rs.15 lakh and above based on deposit size. These exceptions remain valid.
What happens if we don't comply with this directive?
RBI views any violation seriously and may impose penalties under the Banking Regulation Act, 1949 (AACS). Immediate discontinuation and compliance reporting are mandatory.