Bank should not levy penalty on conversion of one Term deposit in other

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RBI /2012-13/334
RPCD.RRB.BC.No.52/03.05.33/2012-13

December 14, 2012

All Regional Rural Banks
Dear Sir/Madam
Conversion of Term Deposits, Daily Deposits or Recurring Deposits for Reinvestment in Term Deposits by Regional Rural Banks

As per extant instructions on Interest Rates on Deposits, RRBs on request from the depositor, should 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. RRBs are required to pay interest in respect of such term deposit without reducing the interest by way of penalty provided that deposit remains with the bank after reinvestment for a period longer than the remaining period of the original contract.

2. 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.