Reserve Bank of India has asked the cooperative banks to keep a tab on premature conversions of Fixed Deposits into other lucrative deposit options.
The RBI issued notification read, "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".
As per the current norms in these banks do not levy any penalty on customers for withdrawing the FD amount before maturity. Due to which, customers end their FDs and put them in deposit schemes with high interest rates.
The new policy comes against the 2010-11 RBI policy which allowed Cooperative banks to formulate their own policies regarding conversion of deposits.