What changed
Previously, FCNR(B) deposit rates were set weekly; now they are set monthly, matching the NRE deposit rate-setting cycle. The reference rate is the LIBOR/SWAP rate on the last working day of the preceding month. The ceiling formula (LIBOR/SWAP minus 25 bps) stays unchanged, and Yen deposits retain flexibility to offer rates at or below LIBOR.
What it means for you
Banks must update their FCNR(B) deposit pricing systems to a monthly reset cycle, reducing administrative frequency. This change simplifies rate consistency across NRE and FCNR(B) products, potentially affecting deposit pricing strategies. The unchanged ceiling ensures no immediate impact on maximum payable rates, but monthly resets may alter competitive positioning.
What you must do
- Update FCNR(B) deposit rate-setting procedures to use LIBOR/SWAP rates from the last working day of the preceding month.
- Communicate the new monthly rate fixation cycle to treasury and deposit operations teams.
- Ensure Yen deposit rates comply with the flexibility to set at or below LIBOR, not exceeding it.
- Review and amend any internal circulars or product documentation referencing weekly rate fixation.
Who it affects
Co-operative banks accepting FCNR(B) deposits, Treasury departments managing NRI deposit products, Deposit operations teams handling rate updates
What is the new ceiling for FCNR(B) deposit rates?
The ceiling remains LIBOR/SWAP minus 25 basis points, except for Yen deposits where rates can be equal to or less than LIBOR.
When does the monthly rate fixation take effect?
Effective from November 1, 2004, banks must use rates prevailing on the last working day of the preceding month to set rates for the following month.
Does this change affect NRE deposit rate fixation?
No, NRE deposits already used monthly fixation; this change aligns FCNR(B) with that practice for consistency.