The Hindu Business Line : Banks told to drop special deposit schemes

Mumbai, Oct. 26 Depositors who are wary of withdrawing their money from fixed deposits for fear of losing the interest may soon have some relief. The Reserve Bank of India has asked banks that are offering special term deposit schemes under which no interest is paid in case of premature withdrawal during the lock-in period, to discontinue such schemes with immediate effect.

In a circular issued today, the RBI said that some banks are offering special term deposits, ranging from 300 days to five years, with lock-in periods ranging from six to 12 months and no interest on premature withdrawal during the lock-in period. The interest rates offered on these deposits are not in tune with the rates of interest on normal deposits, said the RBI.

In its note, the RBI said, “Lock-in periods and other features, which have been floated by some banks, are not in conformity with our instructions. Banks that have floated such deposit schemes are, therefore, advised to discontinue the schemes with immediate effect and report compliance.”

According to a senior official from a leading public sector bank, at one point of time, most banks had such schemes as it gave them long-term funds and stability to the balance sheet. But most of them have discontinued the schemes.

“These deposits give banks funds between 400 days to two years, so it gives long term funds to banks and helps in resolving the asset-liability mismatches,” he said.

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