What is negotiable Certificate of Deposit?

A negotiable certificate of deposit (NCD) is a certificate of deposit issued by the banks and it is freely negotiable unlike non-negotiable CDs which cannot be transferred, sold, bought, or exchanged.

The Certificates of Deposit (CDs) were introduced in India in 1989.Minimum amount of a CD should be Rs.1 lakh. In India, CDs in physical form are freely transferable by endorsement and delivery. Since CDs are transferable, the physical certificates may be presented for payment on maturity  by the last holder.  CDs in demat form can be transferred as per the procedure applicable to other demat securities.

A negotiable instrument is a document that promises payment to a specified person or the assignee guaranteeing the payment of a specific amount of money, either on demand, or at a set time, with the payee usually named on the document. The certificate of deposits do have the characteristic of a negotiable instrument  (such as a check, draft, promissory note, bill of exchange) that allows it to be legally and freely (unconditionally) assignable, saleable, or transferable. CD also allows the passing of its ownership from one party (transferor) to another (transferee) by endorsement and delivery. By this definition, Certificate of deposit is also a negotiable instrument.

Banks / FIs cannot grant loans against CDs. Furthermore, they cannot buy-back their own CDs before maturity.  However, the RBI may relax these restrictions for temporary periods through a separate notification.