What is a certificate of deposit (CD)?

A certificate of deposit is a bank deposit you can sell. Unlike a fixed deposit, which sits locked between one depositor and one bank until maturity, a certificate of deposit is a negotiable instrument: it is held in demat form, it trades in the secondary market, and it changes hands without the bank being involved. In India it is governed by the Master Direction, Reserve Bank of India (Certificate of Deposit) Directions, 2021, issued on 4 June 2021 and in force from 7 June 2021. This guide explains what a certificate of deposit is, who issues it, and how it is reported. It is not investment advice.

How does a certificate of deposit work?

A bank raising short-term funds issues a CD against money deposited with it. The instrument is a usance promissory note, meaning a written promise to pay a stated sum at a stated future date, and it is negotiable, meaning the holder can transfer it. Because it is negotiable and dematerialised, the original buyer does not have to hold it to maturity: the CD can be sold over the counter or on a recognised stock exchange approved by the RBI.

The economics are set at issue. Paragraph 5(b) allows a CD to be issued at a discount to face value, or on a fixed or floating rate basis. A floating rate CD must reset at periodic rests agreed at the time of issue, and the rate must be linked to a benchmark published by a Financial Benchmark Administrator or approved by FIMMDA for the purpose.

Who can issue and who can hold a certificate of deposit?

Issuance is closed to non-banks. Paragraph 3 permits only Scheduled Commercial Banks, Regional Rural Banks and Small Finance Banks to issue CDs. Where an All India Financial Institution issues one, it is governed not by these Directions but by the RBI Master Circular on Resource Raising Norms for Financial Institutions dated 1 July 2015.

That single restriction is the cleanest way to tell a CD from the other short-term instrument it is constantly confused with. A company cannot issue a certificate of deposit. A bank is not on the list of entities that may issue commercial paper. The two instruments do not overlap on the issuer side at all, which is the starting point of commercial paper vs certificate of deposit.

On the investor side, Paragraph 4 is one line: CDs may be issued to all persons resident in India. There is no non-resident carve-out of the kind the commercial paper Directions contain, and no individual participation cap.

What are the rules on tenor, buyback and lending?

The operating rules are short:

• Form. Dematerialised only, held with a SEBI registered depository.
• Denomination. Five lakh rupees minimum, multiples of five lakh thereafter.
• Tenor. Not less than seven days and not more than one year at issuance.
• Issue basis. T+1, where T is the date of closure of the offer period.
• Settlement. OTC trades settle T+0 or T+1, on a delivery-versus-payment basis through the clearing corporation of a recognised stock exchange.
• Market hours. 9:00 AM to 5:00 PM on a business day.
• Repayment. No grace period.

Two rules deserve to be read together. Banks may buy back their own CDs before maturity, but only from seven days after the date of issue, at the prevailing market price, with the offer extended to all investors in that issue on identical terms, and any CD bought back is extinguished. Banks may not lend against CDs unless the RBI specifically permits it. The first gives the issuing bank a controlled way to retire paper early. The second stops a bank from recycling its own short-term liability into a loan book.

Where is certificate of deposit data reported?

Through the trade repository, not through an exchange filing. Paragraph 6 puts four obligations on the calendar:

1. Primary issuance. Reported by the issuer to the Financial Market Trade Reporting and Confirmation Platform, F-TRAC, of the Clearing Corporation of India, by 5:30 PM on the day of issuance.
2. Secondary market transactions. Reported with a time stamp within 15 minutes of execution, by each counterparty to the trade.
3. Buybacks. Reported by the issuer on F-TRAC by 5:30 PM on the day of buyback.
4. Depository reporting. Depositories report CD holdings to the RBI fortnightly, on the 15th and the last day of the month, in the format at Annex I of the Directions.

Note who reports the primary issuance here. For a CD it is the issuing bank itself. For commercial paper it is the Issuing and Paying Agent, a separate scheduled commercial bank appointed for the issue, whose duties are set out in what is an issuing and paying agent. The mechanics of the repository are covered in what is F-TRAC.

The Annex I format is worth knowing if you ever see this data. It carries issuer name, issuer code, issuer category, ISIN, security description, maturity date, residual tenor in days, investor name, investor scheme name where applicable, investor category, and amount in crore rupees at face value. That is a holder-level dataset, and it goes to the RBI rather than to the public.

A certificate of deposit is a bank liability wearing the clothes of a tradable security, and its disclosure trail runs through a trade repository rather than a stock exchange. Flock reports public regulatory filings with every claim sourced and dated. What any of it means for your money is your call to make.