Context:
Banks fundraising through CDs rises amid liquidity deficit
Certificate of Deposits:
- Money market instrument, which is negotiable and equivalent to a promissory note.
- Issued in lieu of the funds deposited at a bank for a specified time period.
- Can be issued by –
- All scheduled commercial banks excluding Regional Rural Banks (RRBs) and Local Area Banks (LABs)
- Selected All India Financial Institutions permitted by RBI
- Can be issued to – Individuals, corporations, companies, trusts, funds, associations etc.
- Non-Resident Indians are also eligible for CDs provided they don’t repatriate the funds.
- Minimum amount for Certificate of Deposit – Fixed at Rs. 5 Lakh, to be accepted from a single subscriber
- Larger amounts have to be in the multiples of Rs. 5 Lakh.
- Tenure – Between 7 days to 1 year for commercial banks.
- For Financial Institutions, the maturity is not less than a year and not more than 3 years.
- Return on Certificates of Deposits –
- CDs are issued at a discount on face value.
- Return on them is difference between the issue value and face value.
- There is no lock-in period for a certificate of deposit.
- It is fully taxable under the Income Tax Act.
Source: Business Standard
Previous Year Question
Consider the following statements:
1. The Reserve Bank of India manages and services Government of India Securities but not any State Government Securities.
2. Treasury bills are issued by the Government of India and there are no treasury bills issued by the State Governments.
3. Treasury bills offer are issued at a discount from the par value.
Which of the statements given above is/are correct?
[UPSC Civil Service Exam – 2018 Prelims]
(a) 1 and 2 only
(b) 3 only
(c) 2 and 3 only
(d) 1, 2 and 3
Answer: (c)
Explanation:
Statement 1 is incorrect. The Reserve Bank of India manages public debt and issues Indian currency denominated loans on behalf of the central and the state governments under the powers derived from the Reserve Bank of India Act.
