Chapter07 120817031936-phpapp01

Certificate of Deposits Retail Banking Chapter 07

Certificates of Deposits

IntroductionDefinition, Form, IssuanceQuantum, Format, Minimum SizeEligibility, Maturity, Issue PriceLock In, Loans/Buyback, RepaymentTransferability, Loss of Certificate, Security


IntroductionA certificate of deposit is money market instrument issued in

dematerialized form Following chart throws light on main points of

Certificate of depositsCertificate of Deposit.

Definition

Form

Issuance

Issue price

Transferability

Lock in

Quantum that may issued

Format

Minimum size

Eligibility to subscribe

Maturity

Loans/ buy backs

Repayment

Lost certificates

Security

Payment


Definition, Form, Issuance

The Certificate of Deposits can be defined as, “a negoriablemoney market instrument which is issued in a dematerialized formor as a issuance promissory note for funds deposited at bank orother financial institutions for specified period.

The Format of certificate of deposit is of two types.1) dematerialized 2) Physical

Former type is used by bank and financial institutions. The latertype is optional which attracts stamp duty.The Certificate of Deposits can be issued by commercial banksexcluding (RAB’s) , local banks and all financial institutions thathave been permitted by RBI to raise short-term funds


Quantum, Format, Minimum Size

Banks are free to issue as many as they required. Financialinstitution can issued within the limit set by RBI, currently it is100% of its next owned funds together with other instrument.

The format of Certificate of Deposits is in dematerializedform. If investor insist on physical certificate banks/FI’s mayinform Financial Markets Department, RBI, Central Office,Mumbai.

The Minimum amount of Certificate of Deposits is Rs.1lakh. They must be in multiplies of Rs.1 lakh thereafter


Eligibility, Maturity, Issue PriceFollowing Chart Shows, Who can subscribe Certificate of

Companies

Trusts

Individuals

Associations

Deposits

Corporations

Who Cansubscribed

Certificate ofDeposits

Funds


Eligibility, Maturity, Issue Price

The Certificate of Deposits may be issued at a discount onface value. Banks and Financial Institutions are permitted toissue these on floating rate basis. The interest rate on floating rateCertificate of Deposits will have to be reset periodically. Banksmust keep Statutory reserve (CRR and SLR) on the issue price ofCertificate of Deposits.

Maturity of Certificate of Deposits should not beless than 7 days and not more than one year. In case of financialinstitutions the minimum period is 1 year and maximum is 3 years


Lock In, Loans/Buyback, RepaymentIn case of Certificate of Deposits, there is no lock in

period. Banks and financial institutions can not grant loansagainst Certificate of Deposits and they can’t even buyback theirown Certificate of Deposits before maturity.

The Certificate of Deposits are due on the date stated onthe instrument. There is no grace period. If the maturity day is aholiday, the issuing bank must make payment on the precedingday. The physical Certificate of Deposit must be presented forpayment by the last holder. Payment of Certificate of Depositshould only be by crossed cheque. Holder of dematted Certificateof Deposits should approach depository participants forencashment


Transferability, Loss of Certificate, Security

The physical Certificate of Deposits are freely transferableby endorsement and delivery. In case of dematted Certificate ofDeposits, it can be transferred in the same manner as otherdematerialized securities.

In case of loss of Certificate of Deposits, duplicatecertificate may be issued only after:

- A notice is given in at least one news paper.

- There has been lapse for 15 days from the date of notice

- Investor has to executes an indemnity bond.


Transferability, Loss of Certificate, Security

The duplicate certificate should be issued in Physical form.No fresh stamping required. The duplicate certificate shouldclearly stated that it is a duplicate one.

the Physical Certificate of Deposits should be printed ongood quality security paper and precaution must be taken to guardagainst tampering. They should be signed by two or moreauthorised signatories.

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Chapter07 120817031936-phpapp01

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