With reference to Certificate of Deposit (CD) in India, consider the following statements:
1. It is a fixed-income financial instrument governed by the Reserve Bank of India (RBI) and is issued in dematerialized form.
2. It is an agreement between depositors and banks, where the bank pays a fixed interest on the deposited sum for a predefined term.
3. It can be publicly traded and used as collateral by banks before maturity.

Which of the statements given above is/are correct?
(a) 1 and 2 only
(b) 3 only
(c) 1 and 3 only
(d) 1, 2 and 3

Question

With reference to Certificate of Deposit (CD) in India, consider the following statements:
1. It is a fixed-income financial instrument governed by the Reserve Bank of India (RBI) and is issued in dematerialized form.
2. It is an agreement between depositors and banks, where the bank pays a fixed interest on the deposited sum for a predefined term.
3. It can be publicly traded and used as collateral by banks before maturity.

Which of the statements given above is/are correct?
(a) 1 and 2 only
(b) 3 only
(c) 1 and 3 only
(d) 1, 2 and 3

ONLiNE UPSC · Accepted Answer

Banks are reducing the issuance of Certificates of Deposit (CDs) because their deposits are growing faster than the demand for loans.

Statement 1 is correct: A Certificate of Deposit (CD) is a fixed-income instrument issued by banks and financial institutions to raise short-term funds. It is governed by RBI guidelines, which regulate its issuance, tenure, and tradability. As per RBI instructions, CDs are issued in dematerialized form (electronic format) to enhance transparency and reduce risks.

Statement 2 is correct: CD represents an agreement where a lump sum is deposited for a specific period, and the bank pays a fixed predetermined or floating interest rate for that tenor. The relationship is contractual, and the principal plus interest are paid out at maturity.

Statement 3 is correct: CDs are negotiable instruments, meaning they can be traded in the secondary market before maturity. Banks and financial institutions can also use them as collateral for borrowing or repo transactions. This makes CDs a liquid and flexible instrument, especially for institutional investors.

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M Question 1	⏱ 0
With reference to Certificate of Deposit (CD) in India, consider the following statements: 1. It is a fixed-income financial instrument governed by the Reserve Bank of India (RBI) and is issued in dematerialized form. 2. It is an agreement between depositors and banks, where the bank pays a fixed interest on the deposited sum for a predefined term. 3. It can be publicly traded and used as collateral by banks before maturity. Which of the statements given above is/are correct? (a) 1 and 2 only (b) 3 only (c) 1 and 3 only (d) 1, 2 and 3