Certificate of Deposit

Certificates of Deposits can also be issued to Non-Resident Indians but on a non-repatriable basis only. It is important to note that banks and financial institutions cannot provide loans against Certificates of Deposits.

Also, banks cannot buy their own Certificates of Deposits prior to the latter's maturity. However, the aforementioned norms may be relaxed by the RBI for a specific period of time. It is important to note that banks have to maintain the statutory liquidity ratio (SLR) and cash reserve ratio (CRR) on the price of a Certificate of Deposit.

Format of Certificates of Deposit

Banks and financial institutions should issue a Certificate of Deposit in a dematerialised form only. However, investors can seek a certificate in physical form as well as per Depositories Act, 1996.

In case an investor seeks a certificate in a physical form, a bank informs the Financial Markets Department, Reserve Bank of India, Mumbai. Also, a Certificate of Deposit entails stamp duty charges as well.

Given that Certificates of Deposits are transferable in a physical form, banks should ensure that they are issued on good quality paper. A Certificate of Deposit has to be signed by two or more signatories (authorized).

Minimum size and maturity of a Certificate of Deposit

A certificate of deposit can only be issued for a minimum of Rs.1 lakh by a single issuer and in multiples of Rs.1 lakh. The maturity of a certificate of deposit depends on the investor. For instance, for a certificate of deposit issued by banks, the maturity period is not less than seven days and not above one year while for financial institutions, a certificate of deposit should not be issued for less than one year and not above three years.

Transferability

A certificate of deposit which is not held in an electronic form can be transferred by endorsement and delivery. However, a certificate of deposit held in a demat form is transferred according to guidelines followed by demat securities.

Discount

A certificate of deposit can be issued at a discount on its face value. Furthermore, banks and financial institutions can issue certificates of deposits on a floating rate basis. However, the method of calculating the floating rate should be market-based.

Reporting

Banks' fortnightly return should include certificates of deposits as per Section 42 of the RBI Act, 1934. Furthermore, banks and financial institutions should also report about certificates of deposits under the Online Returns Filing System (ORFS).