What changed
NRE savings accounts will now earn the same rate as domestic savings deposits, replacing the earlier LIBOR/SWAP-linked benchmark for six months maturity on US dollar deposits. For NRE term deposits of one to three years, the maximum interest rate has been increased from LIBOR/SWAP plus 50 bps to plus 75 bps, with the rate also applicable to deposits exceeding three years, effective from close of business on November 17, 2005.
What it means for you
RRBs can now offer slightly higher rates on NRE term deposits, potentially making them more attractive to non-resident depositors. However, the savings rate shift to domestic savings rates may lower returns for NRE savings account holders, possibly affecting deposit mix.
What you must do
- Update NRE savings account interest rate to match domestic savings deposit rate immediately, effective from close of business on November 17, 2005.
- Adjust NRE term deposit pricing to ensure rates do not exceed LIBOR/SWAP rates as on the last working day of the previous month for US dollar of corresponding maturity plus 75 bps for one to three years, with same rate for deposits exceeding three years.
- Apply the new ceilings to all fresh deposits and renewals after the present maturity period, effective from close of business on November 17, 2005.
- Acknowledge receipt of this circular to your respective RBI Regional Office.
Who it affects
Regional Rural Banks (RRBs), Sponsor Banks of RRBs, Non-Resident Indian (NRI) depositors
What is the new interest rate ceiling for NRE term deposits?
For one to three year tenors, the ceiling is LIBOR/SWAP rates as on the last working day of the previous month for US dollar of corresponding maturity plus 75 basis points, effective from close of business on November 17, 2005. The same rate applies to deposits exceeding three years.
Does this change apply to existing NRE deposits?
No, it applies to fresh deposits and renewals after the present maturity period, effective from close of business on November 17, 2005.
Why did RBI raise the spread on NRE term deposits?
The circular does not specify reasons.