Policy on Conversion of term deposits, daily deposits or recurring deposits for reinvestment in term deposits


Policy on Conversion of term deposits, daily deposits or recurring deposits for reinvestment in term deposits – Monetary Policy Statement 2010-11

In terms of Reserve Bank of India’s Master Circular dated July 1, 2009 on ‘Interest Rates paragraph 2.12 of the Master Circular dated July 1, 2009 on ‘Interest Rates on Rupee Deposits held in Domestic, Ordinary Non-Resident (NRO) and Non-Resident (External) (NRE) Accounts’,

  • Banks were  not allowed to charge any penalty by way of reduction of the interest rate, for premature closure of term deposit, a deposit in the form of daily deposit or recurring deposit,
  • if the deposit amount is converted to a fresh deposit,
  • for a period longer than the remaining period of the original contract.

However, in the Monetary Policy Statement 2010-11 announced by Governor on April 20, 2010 – Paragraph 104, a slight modification of the above guidelines has been made.

This slight change was necessitated to provide more flexibility to the individual Banks in offering a superior customer service.

I Quote the change, announced by Reserve Bank of India, vide Reserve Bank of India, Notification No RBI/2009-10/408, DBOD. No. Dir. BC. 91/13.03.00/2009-2010 dt.April 20, 2010 addressed to All Scheduled Commercial Banks
(excluding RRBs)

QUOTE

On a review of the extant regulatory norms, and in order to facilitate better asset-liability management (ALM), it has been decided to permit banks to formulate their own policies towards conversion of deposits with immediate effect.

UNQUOTE

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Q: Will the banks after this Reserve Bank of India’s notification revert to Penalty charges, for premature closure of deposits, even if the proceeds are immediately invested in the same bank, for a longer period?

Ans: It depends

  • on the market conditions
  • the competition
  • retention strategies of the respective bank

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Q: Is the premature closure and reinvestment facility available on the Bank’s Internet Banking sites?

Ans: No, so far Indian Banks on their internet banking sites offer only fresh deposits or premature closure, but not conversion of deposits.

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Q: Than, how to make use of the facility of conversion of deposits.

Ans: Visit your nearest Bank branch for the same.

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Q: In case of conversion of deposits, will the Old nomination be valid or a fresh Nomination has to be filed?

Ans: A fresh nomination has to be lodged as the converted deposit, is practically for all purposes a new Deposit only.

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Extract from a few Banks website regarding their current policy on premature closure of deposits.

The revised policy should be on the Bank’s website, in another couple of weeks.

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QUOTE – KARNATAKA BANK

Premature Closure of both Domestic & NRE Deposits:

For Regular deposit schemes:

The penalty clause for premature closure of deposits on fresh deposits and renewals made is as follows:

Penalty of 1% shall be levied for premature withdrawal of term deposit. While prematurely closing a deposit, interest on the deposit shall be paid at the rate applicable to the period for which the deposit remained with the bank after levying penal rate of 1%, and not at the contracted rate.

However, if the deposit is prematurely closed for reinvestment, interest shall be paid at the rate applicable to the period for which the deposit remained with the bank without penalty for the amount reinvested provided the reinvested deposit remains with the bank for a period longer than the remaining period of original deposit.

For Special deposit schemes: For deposits accepted under special deposit schemes i.e “KBL-375” and “KBL-400” and “KBL-Varsha”, no penalty will be levied if the entire proceeds of the prematurely closed deposit is reinvested in term deposit schemes for a longer period than the maturity date of the original deposit. However, penalty of 2% will be levied on premature closure without reinvestment or reinvestment for shorter period than the maturity date of original deposit.

UNQUOTE – KARNATAKA BANK

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QUOTE  – IDBI BANK

Note: Interest payable on Premature Withdrawal of Term Deposits:  Retail, Preferential & Senior Citizen Interest payable on prematurely withdrawn deposits will be the contracted rate or the rate applicable for which the deposit remained with the Bank (rate applicable for that tenure on the original date of the deposit) whichever is lower. The above interest payment clause on premature withdrawal of Term Deposits is applicable on all Fixed deposits types like Monthly and Quarterly interest paying deposits, Cumulative or Re-Investment Deposits, Deposits linked to Savings / Current Accounts (FFD types of deposits) & Recurring Deposits. The premature withdrawal penalty of 1% is applicable on deposits opened / renewed with effect from 23th April 2009.

UNQUOTE – IDBI BANK

Special Feature of IDBI Bank: Retail, Preferential & Senior Citizen Interest payable on prematurely withdrawn deposits will be the contracted rate or the rate applicable for which the deposit remained with the Bank (rate applicable for that tenure on the original date of the deposit) whichever is lower.

Most of the Banks on premature closure of deposits, pay interest at the rate applicable for the period which the deposit was kept with the bank.

But IDBI Bank pays the lower of the interest rate of

01) Contracted rate

or

02) Or the rate applicable for which the deposit remained with the Bank

Hm, a nice view.

UNQUOTE – IDBI Bank.

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QUOTE – HDFC BANK

Premature Renewal of Term Deposit

In case the depositor desires to renew the deposit by seeking premature closure of an existing Term Deposit Account, the Bank will permit the renewal at the applicable rate on the date of renewal, provided the deposit is renewed for a period longer than the balance period of the original deposit. While prematurely closing a deposit for the purpose of renewal, interest on the deposit for the period it has remained with the Bank will be paid at the rate applicable to the period for which the deposit remained with the Bank and not at the contracted rate.

Renewal of Overdue Term Deposits

When a Term Deposit is renewed on maturity, the renewed deposit interest rate for the period specified by the depositor as applicable on the date of maturity would be applied. If request for renewal is received after the date of maturity, such overdue deposits will be renewed with effect from the date of maturity at interest rate applicable as on the due date, provided such request is received within 14 days from the date of maturity. In respect of overdue deposits renewed after 14 days from the date of maturity, interest for the overdue period will be paid at the rates decided by the Bank from time to time.

UNQUOTE – HDFC BANK

Special Feature: There is no penalty on premature closure of deposits, even if the deposit is not reinvested with HDFC Bank.

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Disclaimer: All views are my own only, expressed solely by myself. Extracts from the Bank’s website are taken only for a comparative purpose, and I do not approve or disapprove them.

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