What changed
The interest rate ceiling on fresh NRE term deposits (1-3 years) was increased from LIBOR/SWAP plus 50 basis points to plus 75 basis points. For NRE savings accounts, the benchmark shifted from the six-month US dollar LIBOR/SWAP rate to the domestic savings deposit rate.
What it means for you
Co-operative banks can now offer slightly higher rates on NRE term deposits, making them more competitive for attracting NRI funds. However, NRE savings account rates will be lower if domestic savings rates are below the earlier LIBOR-linked rate, potentially reducing the appeal of these accounts for NRIs.
What you must do
- Update NRE deposit interest rate slabs for term deposits (1-3 years) to the new ceiling of LIBOR/SWAP plus 75 bps.
- Reset NRE savings account interest rate to the domestic savings deposit rate.
- Ensure renewed NRE deposits also comply with the revised rate ceilings.
- Communicate the changes to branch staff and update system parameters accordingly.
Who it affects
State Co-operative Banks (StCBs), District Central Co-operative Banks (DCCBs), NRE depositors
What is the new interest rate ceiling for NRE term deposits?
For fresh NRE term deposits with maturities of one to three years, the interest rate cannot exceed the LIBOR/SWAP rate for US dollars of the corresponding maturity, as on the last working day of the previous month, plus 75 basis points.
How does the NRE savings account rate change?
Effective November 17, 2005, NRE savings accounts will earn interest at the rate applicable to domestic savings deposits, replacing the earlier benchmark of the six-month US dollar LIBOR/SWAP rate.
Do these changes apply to existing NRE deposits?
The revised interest rates apply to fresh deposits and also to renewals of existing NRE term deposits after their current maturity period.