RBI asks cooperative banks to formulate norms for conversion of FDs

Reserve Bank permitted cooperative banks to formulate policies to check the practice of premature conversion of fixed deposits into other deposit schemes by customers with a view to obtaining higher interest rates.

"In order to facilitate better Asset Liability Management (ALM), it has been decided to permit banks to formulate their own policies towards conversion of deposit with immediate effect", RBI said in a notification.

Under the current norms, a customer can make pre-mature withdrawal of fixed deposit to invest the amount into other schemes of the same bank without payment of any penalty.

Several customers convert their long-term fixed deposits into other deposit schemes to take advantage of higher interest rates.

The freedom to the cooperative banks in this regard follows the announcement made by the RBI in the credit policy for 2010-11.

"On a review of the 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", the policy statement had said.

Source: EconomicTimes