The Reserve Bank of India (RBI), on October 26, 2023, increased the minimum limit for non-callable fixed deposits (FDs) of banks from Rs 15 lakh to Rs 1 crore with immediate effect. Banks can no longer offer non-callable FDs for less than Rs 1 crore. This rule change will particularly benefit senior citizens who rely on safe guaranteed returns post-retirement.

Before this notification, the limit was Rs 15 lakh, allowing banks to offer premature withdrawal on all FDs up to Rs 15 lakh and for non-callable FDs above Rs 15 lakh.

Non-Callable And Callable FDs

In non-callable FDs, banks do not offer a premature withdrawal facility, whereas, in callable FDs, customers can withdraw their deposits at any time after paying the penalty, if any, which may differ from bank to bank. Banks offer callable and non-callable FDs with different interest rates for the same tenures. However, they offer higher rates on non-callable FDs.

According to the RBI notification, the banks can offer FDs without the premature withdrawal option, although it is not mandatory.

For customers, the rule change means they can withdraw FDs prematurely, even if it is for more than Rs 15 lakh. This option was earlier available for callable FDs. Now, customers can benefit if the interest rates rise. For example, since all FDs up to Rs 1 crore will be callable, they can close the FD before maturity and reinvest at higher rates. However, the extra interest banks offered on non-callable FDs of less than Rs 1 crore may no longer apply.

Banks offer higher rates on non-callable FDs to discourage premature withdrawals if the interest rates increase. So, a higher interest rate is provided on FDs with no early withdrawal facility.

For example, the State Bank of India (SBI) currently offers non-callable FDs called ‘Sarvottam (Non-Callable) Domestic Retail Term. The interest on non-callable FDs is 30 basis points higher than the card rates for 1-year FDs and 40 basis points higher for 2-year FDs.

Similarly, the Bank of Baroda offers higher rates in the range of 25 basis points (0.25 per cent) to 15 basis points (0.15 per cent) on non-callable FDs of less than Rs 2 crore and 10 basis points (0.10 per cent) over the card rates on Rs 2 crore and above FDs, according to its website.

Amended Rules

On the enhanced limit, RBI’s existing provision says, “Provided that all term deposits accepted from individuals (held singly or jointly) for rupees fifteen lakh and below shall have premature-withdrawal-facility.” The amended provision reads: “Provided that all term deposits accepted from individuals (held singly or jointly) for the amount of rupees one crore and below shall have premature-withdrawal-facility.”

As per the amended rules, the banks can offer non-callable FDs to non-resident term deposits (NRE and NRO) as well, for an amount of Rs 1 crore and above, but these term deposits should be from the individuals that can either be in single or joint name. The notification says this change applies to both commercial and cooperative banks.