RBI lets banks set norms for deposit foreclosure

The Reserve Bank of India (RBI) has removed restrictions on banks imposing a penalty on foreclosure of term deposits by customers, in a bid to help banks better manage their asset-liability positions.

As per extant regulations, banks should, on request from the depositor, allow closure of a term deposit, a deposit in the form of daily deposit or recurring deposit, to enable the depositor to immediately reinvest the amount lying in the aforesaid deposits with the same bank in another term deposit.

Bank had to pay interest in respect of such term deposit without reducing the interest by way of penalty provided that the deposit remains with the bank after reinvestment for a period longer than the remaining period of the original contract.

RBI said, on a review of the extant regulatory norms, and in order to facilitate better Asset Liability Management (ALM), it has decided to permit banks to formulate their own policies towards conversion of deposits with immediate effect.

''On a review of the extant regulatory norms and in order to facilitate better asset-liability management (ALM), it is proposed to permit banks to formulate their own policies towards conversion of deposits,'' RBI said in a notification today.