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Master Circular – Guidelines for Issue of Certificates of Deposit

RBI/2008-09/24
Ref. FMD. MSRG. No. 21/02.08.003/2008-09

July 1, 2008
Ashadha 10, 1930(S)

The Chairmen/Chief Executives of
All Scheduled Banks (excluding RRBs and LABs)
and All-India Term Lending and Refinancing Institutions

Dear Sir,

Guidelines for Issue of Certificates of Deposit

As you are aware, with a view to further widening the range of money market instruments and giving investors greater flexibility in deployment of their short-term surplus funds, Certificates of Deposit (CDs) were introduced in India in 1989. Guidelines for issue of CDs are presently governed by various directives issued by the Reserve Bank of India, as amended from time to time.

A Master Circular incorporating all the existing guidelines/instructions/directives on the subject has been prepared. It may be noted that this Master Circular consolidates and updates all the instructions/guidelines contained in the circulars listed in the Appendix, in so far as they relate to ‘guidelines for issue of CDs’. This master circular has been placed on RBI website at www.mastercircular.rbi.org.in

Yours faithfully,

(Chandan Sinha)
Chief General Manager


Master Circular
on
Guidelines for Issue of Certificates of Deposit (CDs)
as amended up to June 30, 2008

Introduction
Eligibility
Aggregate Amount
Minimum Size of Issue and Denominations
Who can Subscribe
Maturity
Discount
Reserve Requirements
Transferability
Loans/Buy-backs
Format of CDs
Payment of Certificate
Issue of Duplicate Certificates
Accounting
Standardised Market Practice and Documentation
Reporting
Annex I
Annex II
Appendix

Introduction

Certificates of Deposit (CDs) is a negotiable money market instrument and issued in dematerialised form or as a Usance Promissory Note, for funds deposited at a bank or other eligible financial institution for a specified time period. Guidelines for issue of CDs are presently governed by various directives issued by the Reserve Bank of India, as amended from time to time. The guidelines for issue of CDs incorporating all the amendments issued till date are given below for ready reference.

Eligibility

2. CDs can be issued by (i) scheduled commercial banks excluding Regional Rural Banks (RRBs) and Local Area Banks (LABs); and (ii) select all-India Financial Institutions that have been permitted by RBI to raise short-term resources within the umbrella limit fixed by RBI.

Aggregate Amount

3. Banks have the freedom to issue CDs depending on their requirements.

4. An FI may issue CDs within the overall umbrella limit fixed by RBI, i.e., issue of CD together with other instruments, viz., term money, term deposits, commercial papers and inter-corporate deposits should not exceed 100 per cent of its net owned funds, as per the latest audited balance sheet.

Minimum Size of Issue and Denominations

5. Minimum amount of a CD should be Rs.1 lakh, i.e., the minimum deposit that could be accepted from a single subscriber should not be less than Rs. 1 lakh and in the multiples of Rs. 1 lakh thereafter.

Who can Subscribe

6. CDs can be issued to individuals, corporations, companies, trusts, funds, associations, etc. Non-Resident Indians (NRIs) may also subscribe to CDs, but only on non-repatriable basis which should be clearly stated on the Certificate. Such CDs cannot be endorsed to another NRI in the secondary market.

Maturity

7. The maturity period of CDs issued by banks should be not less than 7 days and not more than one year.

8. The FIs can issue CDs for a period not less than 1 year and not exceeding 3 years from the date of issue.

Discount/ Coupon Rate

9. CDs may be issued at a discount on face value. Banks/FIs are also allowed to issue CDs on floating rate basis provided the methodology of compiling the floating rate is objective, transparent and market-based. The issuing bank/FI is free to determine the discount/coupon rate. The interest rate on floating rate CDs would have to be reset periodically in accordance with a pre-determined formula that indicates the spread over a transparent benchmark.

Reserve Requirements

10. Banks have to maintain the appropriate reserve requirements, i.e., cash reserve ratio (CRR) and statutory liquidity ratio (SLR), on the issue price of the CDs.

Transferability

11. Physical CDs are freely transferable by endorsement and delivery. Dematted CDs can be transferred as per the procedure applicable to other demat securities. There is no lock-in period for the CDs.

Loans/Buy-backs

12. Banks/FIs cannot grant loans against CDs. Furthermore, they cannot buy-back their own CDs before maturity.

Format of CDs

13. Banks/FIs should issue CDs only in the dematerialised form. However, according to the Depositories Act, 1996, investors have the option to seek certificate in physical form. Accordingly, if investor insists on physical certificate, the bank/FI may inform the Chief General Manager, Financial Markets Department, Reserve Bank of India, Central Office, Fort, Mumbai - 400 001 about such instances separately. Further, issuance of CDs will attract stamp duty. A format (Annex I) is enclosed for adoption by banks/FIs. There will be no grace period for repayment of CDs. If the maturity date happens to be holiday, the issuing bank should make payment on the immediate preceding working day. Banks/FIs may, therefore, so fix the period of deposit that the maturity date does not coincide with a holiday to avoid loss of discount / interest rate.

Security Aspect
14. Since physical CDs are freely transferable by endorsement and delivery, it will be necessary for banks to see that the certificates are printed on good quality security paper and necessary precautions are taken to guard against tampering with the document. They should be signed by two or more authorised signatories.

Payment of Certificate

15. Since CDs are transferable, the physical certificate may be presented for payment by the last holder. The question of liability on account of any defect in the chain of endorsements may arise. It is, therefore, desirable that banks take necessary precautions and make payment only by a crossed cheque. Those who deal in these CDs may also be suitably cautioned.

16. The holders of dematted CDs will approach their respective depository participants (DPs) and have to give transfer/delivery instructions to transfer the demat security represented by the specific ISIN to the ‘CD Redemption Account’ maintained by the issuer. The holder should also communicate to the issuer by a letter/fax enclosing the copy of the delivery instruction it had given to its DP and intimate the place at which the payment is requested to facilitate prompt payment. Upon receipt of the Demat credit of CDs in the “CD Redemption Account”, the issuer, on maturity date, would arrange to repay to holder/transferor by way of Banker’s cheque/high value cheque, etc.

Issue of Duplicate Certificates

17. In case of the loss of physical certificates, duplicate certificates can be issued after compliance with the following:

(a) A notice is required to be given in at least one local newspaper

(b) Lapse of a reasonable period (say 15 days) from the date of the notice in the newspaper; and

(c) Execution of an indemnity bond by the investor to the satisfaction of the issuer of CDs.

18. The duplicate certificate should only be issued in physical form. No fresh stamping is required as a duplicate certificate is issued against the original lost CD. The duplicate CD should clearly state that the CD is a Duplicate one stating the original value date, due date, and the date of issue (as “Duplicate issued on ________”).

Accounting

19. Banks/FIs may account the issue price under the Head “CDs issued” and show it under deposits. Accounting entries towards discount will be made as in the case of “cash certificates”. Banks/FIs should maintain a register of CDs issued with complete particulars.

Standardised Market Practices and Documentation

20. Fixed Income Money Market and Derivatives Association of India (FIMMDA) may prescribe, in consultation with the RBI, for operational flexibility and smooth functioning of the CD market, any standardised procedure and documentation that are to be followed by the participants, in consonance with the international best practices. Banks/FIs may refer to the detailed guidelines issued by FIMMDA in this regard on June 20, 2002.

Reporting

21. Banks should include the amount of CDs in the fortnightly return under Section 42 of the Reserve Bank of India Act, 1934 and also separately indicate the amount so included by way of a footnote in the return.

22. Further, banks/FIs should submit a fortnightly return, as per the format given in Annex II, to the Chief General Manager, Financial Markets Department, Reserve Bank of India, Central Office Building, Fort, Mumbai – 400 001, Fax: 91-22-22630981/22634824 within 10 days from the end of the fortnight date.


Annex I

Name of the bank/institution

No. Rs.___________
Dated:______________

NEGOTIABLE CERTIFICATE OF DEPOSIT

_____________months/days after the date hereof, _____<Name of the Bank/Institution>____________,at _____<name of the place>________, hereby promise to pay to _______ <name of the depositor>__________ or order the sum of Rupees ________<in words>____________ only, upon presentation and surrender of this instrument at the said place, for deposit received.

For ________<Name of the institution>____

Date of maturity _______________ without days of grace.

___________________________________________________________________

Instructions Endorsements Date

1.              1.
                 2.
                 3.
                 4.
                 5.


Annex II

Fortnightly Return on
Certificates of Deposit (CDs)
(SFR III – D)

Name of the Bank/Institution :
For the Fortnight ended :

Issue of Certificates of Deposit (CDs)

Total amount of CDs outstanding as at the end of the fortnight

1. On Discount Value Basis (Rs. Crore)
Face Value :
Discounted Value :

2. On Coupon Bearing Basis (Rs. Crore)
Face Value :

Particulars of CDs issued during the fortnight

I. CDs issued on Discount value basis

Sr. No.

Discounted value
of CDs issued
(Amount in Rs.)

Maturity period
(in days)

Effective interest rate
( per cent per annum)

Demat or Physical
CD issued (D/P)

1.

2.

3.

4.

5.

6.

II. CDs issued on Floating Rate Basis

Sr. No.

Face value of CDs
issued (Amount in Rs.)

Maturity period
(in days)

Benchmark

Spread

Demat or Physical
CDs issued (D/P)

1.

2.

3.

4.

5.

6.

Appendix
List of Circulars

Sr.
No

Reference No.

Date

Subject

1.

DBOD. No. BP.BC.134/65-89

June 6, 1989

Certificates of Deposit (CDs)

2.

DBOD. No. BP.BC.112/65-90

May 23, 1990

Certificates of Deposit (CDs)

3.

DBOD. No. BP.BC.60/65-90

December 20, 1990

Certificates of Deposit (CDs)

4.

DBOD. No. BP.BC.113/65-91

April 15, 1991

Certificates of Deposit (CDs)

5.

DBOD. No. BP.BC.83/65-92

February 12 1992

Certificates of Deposit (CDs)

6.

DBOD. No. BC.119/12.021.001/92

April 21, 1992

Section 42(1) of the Reserve Bank of India
Act 1934 -Cash Reserve Ratio on incremental
Certificates of Deposit – Exemption

7.

DBOD. No. BC.106/21.03.053/93

April 7, 1993

Certificates of Deposit (CDs) – Enhancement of Limit

8.

DBOD. No. BC. 171./21.03.053/93

October 11, 1993

Certificates of Deposit (CDs) Scheme

9.

DBOD. No. BP. BC. 109./21.03.053/96

August 9, 1996

Certificates of Deposit (CDs) Scheme

10.

DBOD. No. BP. BC. 49/21.03.053/97

April 22, 1997

Certificates of Deposit (CDs)

11.

DBOD. No. BP. BC. 128/21.03.053/97

October 21, 1997

Certificates of Deposit (CDs)

12.

DBOD. NO. Dir. BC. 96/13.03.00/2001-02

April 29, 2002

Issue of Certificates of Deposit (CDs) in
dematerialised form

13.

DBOD. No. BP. BC. 115/21.03.053/ 2001-02

June 15, 2002

Certificates of Deposit (CDs)

14.

DBOD. No. BP. BC. 43/21.03.053/ 2002-03

November 16, 2002

Mid-Term Review of Monetary and Credit Policy 2002-03:
Certificates of Deposit

15

MPD. No. 254/07.01.279/2004-05

July 12, 2004

Guidelines for Issue of Certificates of Deposit

16

MPD. No. 263/07.01.279/2004-05

April 28, 2005

Certificates of Deposit


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