What changed
RBI replaced the earlier NRE savings deposit rate linked to LIBOR/SWAP with the domestic savings deposit rate. For NRE term deposits of 1-3 years, the interest rate ceiling was raised from LIBOR/SWAP plus 50 bps to plus 75 bps. The same ceiling applies for maturities beyond three years.
What it means for you
Banks can now offer higher rates on NRE term deposits, potentially attracting more NRE inflows. However, NRE savings accounts become less attractive as they now earn the lower domestic savings rate. Banks need to recalibrate their NRE deposit pricing strategies to remain competitive while managing costs.
What you must do
- Update NRE savings account interest rate to domestic savings rate effective November 17, 2005.
- Set NRE term deposit rates for 1-3 years at or below LIBOR/SWAP plus 75 bps.
- Apply the new ceiling to all fresh NRE term deposits and renewals after maturity.
- Ensure compliance with the amending directive DBOD No.Dir.BC.47/13.03.00/2005-06.
Who it affects
All scheduled commercial banks (excluding RRBs), NRE deposit customers, Bank treasury and deposit pricing teams
What is the new interest rate for NRE savings accounts?
Effective November 17, 2005, NRE savings accounts will earn the same rate as domestic savings deposits, replacing the earlier LIBOR/SWAP-linked rate.
What is the maximum interest rate for NRE term deposits?
For deposits of 1-3 years, the rate cannot exceed LIBOR/SWAP rates (for US dollar of corresponding maturity) plus 75 basis points. The same ceiling applies for maturities over 3 years.
Does this apply to existing NRE term deposits?
The new rates apply to fresh deposits and to renewals of existing NRE term deposits after their current maturity period.