Non-callable deposit schemes with higher rates soon

The Reserve Bank of India (RBI) has allowed banks to offer non-callable deposits, fixed-tenure deposit schemes where premature withdrawal is not allowed. The banking regulator said this in its bi-monthly policy review on Tuesday.

The RBI said banks can offer higher interest rates on such deposits. At present, all deposits below Rs 1 crore come with a callable or pre-mature withdrawal option.

"All deposits accepted from individuals and Hindu undivided family (HUF) up to Rs 1 crore are callable, that is, have the facility of premature withdrawal. This results in asset-liability management issues, especially under the Liquidity Coverage Ratio requirement under the Basel III framework. It is, therefore, proposed to allow non-callable deposits. Callability in a deposit will then be a distinguishing feature for offering differential rates on interest on deposits," the central bank said.

The RBI will issue detailed guidelines on such deposit schemes soon.

Meanwhile, the central bank has increased the outward remittance limit under Liberalised Remittance Scheme (LRS) from $125,000 to $250,000 per person per financial year.

RBI had in August 2013 reduced the limit from $200,000 per financial year to $75,000 to check the falling value of rupee. It was later increased to $125,000.

Under LRS, resident individuals can acquire and hold shares or debt instruments or any other assets including property outside India, without prior approval of RBI. Individuals can also open, maintain and hold foreign currency accounts with banks outside India for carrying out transactions permitted under the Scheme.

"The doubling of the limit of remittances under LRS from $125000 to $250000 is expected to provide a boost to the EB-5 program of the US which for selected cases requires an investment of $500,000. The EB-5 visa provides a method of obtaining a green card for foreign nationals who invest money in the United States," Amit Mahesh, partner, Ashok Maheshwary & Associates.