What changed
RBI observed that certain UCBs launched special term deposit products with lock-in periods (6-12 months), no or zero interest on premature withdrawal during lock-in, and interest rates not aligned with normal deposits. These schemes contravene the Master Circular on Interest Rates on Rupee Deposits for UCBs, which prohibits discrimination in interest rates for deposits of same date and maturity except for senior citizen schemes and deposits of Rs.15 lakh and above. RBI has directed all such schemes to be withdrawn with immediate effect and compliance reported to the respective Regional Office.
What it means for you
UCBs must ensure any new deposit scheme is Board-approved and strictly adheres to RBI directives on interest rates, premature withdrawal norms, and loan against deposits. Offering lock-in periods with penal interest structures that differ from standard term deposit rules will attract regulatory action, including penalties under the Banking Regulation Act. This circular reinforces that product innovation cannot override core prudential guidelines.
What you must do
- Review all existing special term deposit schemes for lock-in periods or non-standard premature withdrawal conditions.
- Discontinue any scheme that does not comply with RBI's interest rate and premature withdrawal directives immediately.
- Report compliance to the concerned RBI Regional Office, confirming discontinuation of non-conforming schemes.
- Ensure all future deposit products are approved by the Board and vetted against Master Circular provisions before launch.
Who it affects
All Primary (Urban) Co-operative Banks, Board of Directors of UCBs, Deposit product teams at UCBs, Compliance officers at UCBs
Can UCBs offer any deposit with a lock-in period?
No. RBI has clarified that special term deposits with lock-in periods (6-12 months) and restrictive premature withdrawal terms are not in conformity with existing directives. Such schemes must be discontinued.
What happens if a UCB continues such a scheme?
RBI views any violation seriously and may impose penalty under the Banking Regulation Act, 1949 (AACS). Compliance must be reported to the Regional Office.
Are there any exceptions to the interest rate parity rule?
Yes. Higher rates are allowed only for resident Indian senior citizens' fixed deposits and for single term deposits of Rs.15 lakh and above, based on deposit size. No other discrimination is permitted.