What changed
The ceiling on NRE deposit interest rates for maturities of one to three years has been increased from the existing LIBOR/SWAP rates to LIBOR/SWAP rates plus 50 basis points. This change applies to deposits contracted or renewed on or after November 1, 2004, and also to deposits with maturities exceeding three years.
What it means for you
Banks can now offer higher interest rates on NRE deposits, making them more attractive to non-resident Indians. This aligns NRE deposit rates more closely with international rates and may help banks attract more foreign currency inflows. However, banks must ensure they do not exceed the new ceiling to avoid regulatory action.
What you must do
- Update your NRE deposit interest rate slabs for 1-3 year maturities to not exceed LIBOR/SWAP rates plus 50 bps.
- Apply the new ceiling to all NRE deposits contracted or renewed from November 1, 2004.
- Ensure the same ceiling applies to deposits with maturities over three years.
- Monitor LIBOR/SWAP rates monthly to adjust offered rates accordingly.
Who it affects
All scheduled commercial banks (excluding RRBs), NRE deposit customers, Treasury and deposit operations teams
What is the new ceiling for NRE deposit rates?
For deposits of one to three years maturity, the interest rate cannot exceed the LIBOR/SWAP rate for US dollar of corresponding maturity as on the last working day of the previous month, plus 50 basis points.
Does this apply to existing NRE deposits?
No, it applies only to deposits contracted or renewed on or after November 1, 2004. Existing deposits are not affected until renewal.
What about deposits with maturity over three years?
The same ceiling (LIBOR/SWAP plus 50 bps) applies to deposits with maturity exceeding three years, using the three-year rate as the reference.