RBI mandates that banks permit early closure of FDs up to Rs. 1crore.
According to the RBI, banks are required to permit early withdrawals on all term deposits up to a maximum of Rs 1 crore. The minimum amount for “non-callable” fixed deposits has been increased by the central bank from Rs 15 lakhs to Rs 1 crore.
Prior to this, the banking regulator had permitted lenders to charge higher interest rates on unbreakable fixed deposits, which were non-refundable upon maturity.
In a rising interest rate environment, banks are motivated to provide higher deposit rates without an early withdrawal option. Customers who have non-callable deposits are unable to take their money out in the middle of an interest rate increase. Customers are encouraged to invest in non-callable, illiquid deposit schemes because they offer a marginally higher rate.
Bankers believe that protecting small investors is the reason behind raising the minimum deposit amount on non-callable deposits. For non-callable FDs, banks offer a return that is 25–30 basis points higher. Higher value deposits yield a higher return.
The RBI increased the bulk deposit cap for rural banks from Rs 1 lakh to Rs 1 crore in a separate notification. Accordingly, banks are only able to offer variable rates on deposits totaling more than Rs 1 crore.
