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Mid-Term Review of Monetary and Credit Policy 2002 - 03 - Certificates of
Deposit (CDs)
DBS.
FID. No. C-9 - 01.02.00 - date 25th November 2002
Please
refer to the paragraph No.87 of the Governor�s statement on Mid-term Review of
�Monetary and Credit Policy for the year 2002-03� enclosed with letter No.
MPD.BC.222/ 07.01.279/ 2002-03 dated October 29, 2002 (copy of the paragraph
enclosed).
2.
As per extant regulations, CDs are required to be issued at a discount to
face value and the issuing FI is free to determine the discount rate. With a
view to providing more flexibility for pricing, CDs may also be issued as a
coupon-bearing instrument now. In order to give additional choice to both
investors and issuers, the FIs may issue CDs on floating rate basis provided the
methodology of computing the floating rate is objective, transparent and
market-based.
3.
The interest rate on floating rate CDs would have to be reset
periodically in accordance with a pre-determined formula that indicates the
spread over a transparent benchmark. The standard procedures and documentations
in this regard would be issued separately by FIMMDA in consultation with market
participants.
Please
acknowledge receipt.
Encls:
One Sheet
An
Extract of paragraph No. 87 from the Statement by Dr. Bimal Jalan, Governor,
Reserve Bank of India on Mid term Review of Monetary and Credit Policy for the
year 2002-03, announced on October 29, 2002.
Certificates
of Deposit
87.
In order to increase investor base, minimum size of issues of
Certificates of Deposit (CDs) by banks and Financial Institutions (FIs) to a
single investor has been reduced to Rs. 1 lakh and in multiples of Rs. 1 lakh in
June 2002. In consonance with the announcement of annual policy Statement of
April 2002, FIMMDA has issued standardised procedures, documentation and
operational guidelines for issue of CDs on June 20, 2002. In order to impart
more transparency and to encourage secondary market transactions, the existing
outstanding CDs were required to be converted into demat form by October 2002.
As per extant regulations, CDs are required to be issued at a discount to face
value and the issuing bank is free to determine the discount rate. With a view
to providing more flexibility for pricing of CDs and to give additional choice
to both investors and issuers, it is proposed that:
�
Banks and FIs
may issue CDs on floating rate basis provided the methodology of computing the
floating rate is objective, transparent and market-based.
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