What changed
Previously, banks used different methods and sources for LIBOR/SWAP rates, causing wide variation in NRE/FCNR(B) deposit rates. Now, FEDAI will quote and display the reference rates on the last working day of each month via a webpage accessible to Reuters screen subscribers. Banks must use these FEDAI-published rates to compute interest ceilings from the following month.
What it means for you
This move standardizes the base rate for NRE (1-3 year) and FCNR(B) (1-5 year) deposits, eliminating competitive distortions. Banks lose flexibility to cherry-pick LIBOR sources, but gain a transparent, uniform benchmark. Expect reduced rate wars among banks for non-resident deposits, and clearer pricing for depositors.
What you must do
- Ensure your institution is a Reuters screen subscriber to access FEDAI's webpage for the official LIBOR/SWAP rates from last working day of Feb 2006.
- Update your NRE/FCNR(B) deposit rate-setting systems to use FEDAI's published rates as the sole reference.
- Train your treasury and retail teams on the new uniform calculation method before March 2006.
- Review and align your existing NRI deposit product documentation with the new FEDAI-based rate mechanism.
Who it affects
All commercial banks (excluding RRBs) offering NRE deposits, All commercial banks (excluding RRBs) offering FCNR(B) deposits, Treasury departments managing NRI deposit pricing, Non-resident depositors seeking consistent rates across banks
What currencies and maturities does FEDAI cover?
FEDAI will publish rates for six currencies (USD, GBP, EUR, CAD, AUD, JPY) across five maturities for NRE (1-3 years) and FCNR(B) (1-5 years) deposits.
When does the new FEDAI rate system take effect?
The first FEDAI rates will be published for the last working day of February 2006, and banks must use them for deposits effective from March 2006.
Does this change any other NRI deposit rules?
No. All other terms and conditions for NRE and FCNR(B) deposits remain unchanged as per the existing master circulars.