What changed
RBI increased the interest rate ceiling on fresh NRE term deposits (1-3 years) from LIBOR/SWAP plus 50 basis points to plus 75 basis points. For NRE savings accounts, the rate was changed from LIBOR/SWAP-based to the domestic savings deposit rate. These changes apply to renewals of term deposits after their present maturity period.
What it means for you
Urban Co-operative Banks can now offer slightly higher rates on NRE term deposits, making them more competitive for attracting NRE funds. The shift to domestic savings rate for NRE savings accounts simplifies pricing but may reduce returns for depositors. Banks must monitor LIBOR/SWAP rates monthly to set compliant ceilings.
What you must do
- Update NRE deposit interest rate slabs for savings and term deposits effective close of business on Nov 17, 2005.
- Ensure term deposit rates for 1-3 years do not exceed LIBOR/SWAP plus 75 bps as of last working day of previous month.
- Apply the same ceiling (as for 3-year deposits) to NRE deposits with maturity over 3 years.
- Communicate revised rates to branches and update system parameters for renewals of term deposits.
- Review and align internal circulars with the amending directive UBD.No.Dir.1/13.01.000/05-06.
Who it affects
All Primary (Urban) Co-operative Banks, NRE depositors, Treasury and deposit operations teams
Does this change apply to existing NRE deposits?
No, it applies to fresh deposits contracted from close of business on Nov 17, 2005, and to renewals of existing term deposits after their maturity.