Introduction

A certificate of Deposit or CD is a time deposit, a financial product commonly offered to

consumers by banks, thrift institutions, and credit unions. A savings certificate entitling
the bearer to receive interest. A CD bears a maturity date, a specified fixed interest rate
and can be issued in any denomination. A certificate of deposit, or CD, is an interest-
bearing deposit account. However, unlike a savings deposit account in which the interest
rate may fluctuate, a CD investment is guaranteed a specific rate of return. The interest
rate on a CD is higher than on a savings account because the investor, in exchange for
receiving a guaranteed rate of return, commits to a specified period of time (the "term")
during which he will not withdraw his investment. Common terms for CDs range from 30
days to 5 years. With most CDs, withdrawing any of the investment before the end of the
term (the "maturity date") will incur an often substantial early withdrawal penalty.

Certificates of Deposit in India

CDs are negotiable money market instrument issued in demat form or as a Usance
Promissory Notes. CDs issued by banks should not have the maturity less than seven days
and not more than one year. Financial Institutions are allowed to issue CDs for a period
between 1 year and up to 3 years.

CDs are like bank term deposits but unlike traditional time deposits these are freely
negotiable and are often referred to as Negotiable Certificates of Deposit. CDs normally
give a higher return than Bank term deposit. CDs are rated by approved rating agencies
(e.g. CARE, ICRA, CRISIL, and FITCH) which considerably enhance their tradability in
the secondary market, depending upon demand.
 CERTIFICATE OF DEPOSITS

This scheme was introduced in July 1989, to enable the banking system to mobilise
bulk deposits from the market, which they can have at competitive rates of interest.
The major features are:
Who can issue Scheduled commercial banks (except RRBs) and All India Financial
Institutions within their `Umbrella limit’.
CRR/SLR Applicable on the issue price in case of banks
Investors Individuals (other than minors), corporations, companies, trusts, funds,
associations etc
Maturity Min: 7 days Max : 12 Months (in case of FIs minimum 1 year and maximum
3 years).
Amount Min: Rs.1 lac, beyond which in multiple of Rs.1 lac
Intt. rate Market related. Fixed or floating
Loan Against collateral of CD not permitted
Pre-mature cancellation Not allowed
Transfer Endorsement & delivery. Any time
Nature Usance Promissory note. Can be issued in Dematerialisation form only only
wef June 30, 2002
Other conditions
• If payment day is holiday, to be paid on next preceding business day
• Issued at a discount to face value
• Duplicate can be issued after giving a public notice & obtaining indemnity

Features of CD

• All scheduled banks (except RRBs and Co-operative banks) are eligible to issue
CDs.
• They can be issued to individuals, corporations, trusts, funds and associations.
• NRIs can also subscribe to CDs, but on non-repatriable basis only. In secondary
market such CDs cannot be endorsed to another NRI.
 • They are issued at a discount rate freely determined by the issuer and the
market/investors.
• CDs issued in physical form are freely transferable by endorsement and delivery.
Procedure of transfer of dematted CDs is similar to that of any other demat
securities.
• For CDs there is no lock-in period.

CDs are issued in denominations of Rs.1 Lac and in the multiples of Rs. 1 Lac thereafter.
Discount/Coupon rate of CD is determined by the issuing bank/FI.Loans cannot be
granted against CDs and Banks/FIs cannot buy back their own CDs before maturity.SBI
DFHI Limited, participates in both the Primary and Secondary Market for CDs.

Tips to Buying a Certificate of Deposit (CD)

The following tips can help you decide on a certificate of deposit:

• Consider your financial goals: The basic recipe for a successful investment is a
clear vision of your financial target and risk appetite. Apart from CDs, there are
various options for diversifying your investment portfolio, such as saving deposits
and treasury bills. Consider all available options before making a decision.
Typically, CDs offer a fixed interest rate for the entire term of the investment.
Thus, the biggest risk factor in opting for a CD is inflation, which can erode the
purchasing power of the total returns from this investment option.
• Consider the maturity time: You money will be locked till the CD matures. So,
ensure that you do not need the funds.
• Consider the rate of interest: Confirm whether the CD offers a simple or a
compounded rate of interest. In case it is a compounded rate, find out whether it is
compounded quarterly or annually.
• Check whether the CD is callable: Banking institutions reserve the right to call a
CD, if the prevailing interest rates are at record low levels. In such a situation, you
will receive the entire principal amount in addition to the interest accrued till the
 CD is called off. To continue your investment, you would have to buy a new CD at
the lower interest rate.
• Confirm the penalty for early withdrawal: Make sure you understand the penalty
levied by the issuing bank for withdrawing your funds prior to the maturity period.

Before buying the CD, it is important to carefully read all the terms and conditions of the
investment. Remember to ask questions from the issuing bank and check the answers
with an unbiased source

Issue of Certificate of Deposits BANK OF RAJASTHAN LTD

Scheme for deploying surplus funds at market driven rates of interest.

All individuals Singly/Jointly, Firms, Corporate bodies, Associations

Eligibility etc. Non-resident Indian may also subscribe only on re-partriable, and
non-transferable basis in the secondary market
Min. Rs. 5.00 lacs & further in multiples of Rs. 1.00 lacs. Issued at
Amount
discounted price.
Period 3 months to 12 months
Interest Mutually agreed rates of interest.
Tax Deduction at
Not Applicable
Source
Transferability
Tranferable by endorsement & delivery after 15 days of issue.
Option
Loan / premature payment is not allowed. Stamp duty borne by the
Other facilities
bank.

ISSUE OF CD TO NRI (Global Indians) BY YES BANK

Global Indians or Non Resident Indians, especially those with strong ties to their
homeland, have been among the most enthusiastic supporters of bank deposits. According
to Reserve Bank of India (RBI) data, even today Global Indians have about $35 billion in
long tenure deposits in India.

One reason for the phenomenal popularity of bank deposits is the safety factor. Unlike
stock markets or properties, bank deposits assure both capital and returns. So as a global
Indian sitting thousands of miles from home, you don’t have to worry about rising oil
prices impacting capital markets, or about volatile realty markets in India.

Bank deposits are safe, provide steady returns, and as a Global Indian, many banks like to
pamper you by offering excellent service, and attractive interest rates. One of the most
popular NRI bank products today is the NRO – Non Resident (Ordinary) account, which
fetches attractive returns.

An NRO account is used by Global Indians to channelize incomes earned in India

including – rental returns, dividends, interests earned out of non-repatriable assets, etc.
Usually, these accounts are not accessed, unless the NRI travels to India. So it doesn’t
make sense to block large amounts in these accounts; a prudent investor would try to
place these funds in a fixed deposit, where returns are higher.

Fortunately for Global Indians, banks are now offering NRO FDs that fetch higher
returns. For instance, Yes Bank – one of the fastest-growing private Indian banks – has
just launched a special fixed deposit scheme, providing an attractive 8 per cent annual
return for a deposit (minimum amount: Rs10,000) ranging from 9 months 1 day, up to a
year. The return is at least 100 basis points higher than the standard rate offered by peer
banks in the industry.

Long-term NRO CDs attract even higher returns:

PERIOD INTEREST RATE
9 months 1 day to 1 year 8.00%
1 year 1 day to 2 years 8.10%
 2 year 1 day to 3 years 8.15%
3 year 1 day to 5 years 7.75%
Greater than 5 years 7.50%
The bank’s certificate of deposit program for Rs1,000 crore has previously been
awarded the A1+ rating by ICRA, the affiliate of Moody’s in India. (An A1+ rating
indicates the highest level of safety in the short-term)
Current Scenario of Banks which hunted amount in CD’s form
In the month of May & June 2010
Certificate of Deposit (CD) rates have plunged sharply despite the Reserve Bank of
India's all round 25 basis points hike in its lean season Credit Policy.

Due to change in Repo & Reveres Repo rates, , few banks were interested in building up
deposits through CDs. This was despite mutual funds' willingness to pick up bank CDs
even at sub-term deposit rates in view of the mounting risk aversion.

Banks, the officials said, preferred to stick to short-term CDs in anticipation that rates
were likely to fall further

One-year CD rates are currently at 6.5 per cent, or about 25 basis points lower than one-
year retail term deposit rates. On May 31, two banks, State Bank of Mysore and
Corporation Bank, raised a total of Rs 750 crore.

In fact, CD rates actually dropped over the may month last week-end. Public sector banks
such as Andhra Bank had raised Rs 250 crore at yields as high as 6.67 per cent.

Banking sources said that the preference was for liquidity support from the Reserve Bank
of India's Repurchase (repo) window. Through this window, the RBI purchases securities
and provides overnight liquidity support to the banks..

Several public sector banks, including Dena bank, Uco Bank and Central Bank of India,
have sought ratings for raising resources through CDs. Bangalore, April 22
One-year CD rates fell to 6.44 per cent from the March average of 6.7 per cent and the
start of june month, level of 6.65 per cent. In the month of June (03-06-2010), banks
raised nearly Rs 5,000 crore. Banks that raised CD resources included the 1, which raised
Rs 1,750 crore and paid out only 6.4 per cent.

LIST OF Banks & Amount Raised by Them

S.no BANK/FINANCIAL INSTITUTION Amount (In crs)

1 State Bank of Patiala 1,750
2 Dena bank, 250
3. Uco Bank 175
4. Central Bank of India, 368
5 Andhra Bank 250
6 State Bank of Mysore and Corporation Bank, 750
7 Yes BANK 1000

BIBLIOGRAPHY
Web sites Referred:
 en.wikipedia.org/wiki/Certificate_of_deposit
 www.bankingindiaupdate.com/cd.htm
 www.sbidfhi.com/education-details.aspx?id=3
 bidocs.rbi.org.in/rdocs/notification/pdfs/85356.pdf

MINI PROJECT

ACADEMIC YEAR : 2009-2011

SEMISTER : 3rd SEMESTER
MID : 1st MID
SUBJECT : FINANCIAL INSTITUTIONS &
SERVICES
 TOPIC : Certificate of Deposit of BANK OF
RAJASTHAN LTD , YES BANK Other Banks

SUBMITED
BY
VANAJA RANI.P
09331E0056

SCHOOL OF MANAGEMENT STUDIES

MVGR COLLEGE OF ENGINEERING
ACCERDITED BY NBA & NAAC ‘A’ GRADED
(APPROVED BY AICTE & PERMANENTLYAFFILIATED TO JNTU KAKINADA)
VIZIANAGARAM – 535005