What changed
The new Master Direction supersedes Section III of the 2016 Master Direction on money markets, consolidating CD-related rules from that section into a single document. It incorporates changes from the June 2021 monetary policy statement to allow more flexibility in liquidity management for CD issuers. Definitions have been updated to include Payment Banks, Small Finance Banks, and references to Benchmark Interest Rates, Electronic Trading Platforms, Financial Benchmark Administrators, and Depositories.
What it means for you
Banks and eligible market participants now have a clearer, unified regulatory framework for issuing and trading Certificates of Deposit. The updated definitions ensure that newer bank categories like Payment Banks and Small Finance Banks are explicitly covered. The flexibility in liquidity management may allow issuers to better manage their funding needs, potentially improving market efficiency.
What you must do
- Review the new Master Direction to ensure compliance with updated definitions and operational requirements.
- Update internal policies and procedures for CD issuance and trading to align with the June 07, 2021 effective date.
- Train treasury and compliance teams on the revised framework, especially regarding liquidity management flexibility.
- Ensure all CD transactions are settled in accordance with the direction, including Delivery versus Payment (DvP) where applicable.
Who it affects
All banks including Payment Banks, Small Finance Banks, RRBs, and cooperative banks, Eligible market participants dealing in Certificates of Deposit
What is the effective date of the new CD Master Direction?
The Master Direction comes into force from June 07, 2021, superseding Section III of the earlier 2016 framework.
Does the new direction change the definition of a Certificate of Deposit?
No, the definition remains the same: a negotiable, unsecured money market instrument issued by a bank as a Usance Promissory Note against funds deposited at the bank for a maturity period upto one year.
Which banks are covered under the updated definition of 'Bank'?
The definition now explicitly includes Payment Banks and Small Finance Banks, along with existing categories like commercial banks, RRBs, and cooperative banks.