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CERTIFICATES OF DEPOSITS

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Certificate of Deposits (CD) is a negotiable instrument and is issued in dematerialized form. It can only be issued by the Banks or financial institution for specified time period, The issue of certificate of deposits is governed under the guidelines of Reserve Bank of India. A bank can issue Certificate of Deposits for maturities from 7 days to one year whereas a financial institution can issue for maturities from 1 year to 3 years. 

Who shall issue CDs?

(i) Any scheduled commercial bank excluding Regional Rural Bank (e. g. Gramin Bank) and Local Areas Banks can issue certificate of depot. 

(ii) Any other Financial Institutions as permitted by RBI. 

Minimum size of Issue and Denominations: The minimum amount of a CD should be of Rs.1 lakh and in the multiples thereof. It means a single subscriber should not be subscribed less than Rs.1 lakh for one unit of CD. 

CD can be issued to Individual, corporations, trust, funds, associations and non – resident Indian etc. 

Maturity Period: A Bank can issue CDs of maturity period not less than 7 days and not more than one year whereas a Financial Institution can issue CDs for a period not less than 1 year and not exceeding 3 years from the date of issue. 

Coupon/Discount rate: CDs may be issued at Interest (Coupon)/discount by the Banks/Financial Institution. The issuing banks/financial institution are free to determine the discount/coupon etc. 

Transferability: The CDs in physical forms are freely transferable by endorsement and delivery. 

Demat CDs can also be transferred, provided:

(i) There is no lock – in period.

(ii) There is no loan against the CDs. 

Note: The Issuing Bank/Financial Institution can‟t buy back their CDs before the maturity date. 

Format of CDs: The CDs should be issued only in the dematerialized form. However, the investors have the option to seek certificate in the physical form. 

Payment of CDs: The payment of CDs can be made to the following persons:-

(i) To the original subscriber.

(ii) To the last holder who shall bring the CD for payment. 

Note: Banks should take necessary precautions and make sure that the payment should only be made through the crossed cheques or bank transfer. The issuer, on the maturity date, shall arrange for the repayment to holder by the way of Banker‟s cheque.

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