What changed
The maximum interest rate on fresh NRE term deposits (1-3 years) was increased from LIBOR/SWAP+75 bps to LIBOR/SWAP+100 bps. The rate determined for three-year deposits also applies for maturities exceeding three years. The change took effect from close of business on April 18, 2006, and also covers renewals of existing deposits.
What it means for you
Co-operative banks can now offer up to 25 bps more on NRE deposits, making them more attractive to NRIs. This could help mobilise more NRE inflows but also raises funding costs. Banks need to recalibrate their NRE deposit pricing strategies within the new ceiling.
What you must do
- Update NRE term deposit interest rate slabs to reflect the new ceiling of LIBOR/SWAP+100 bps for 1-3 year maturities.
- Ensure systems apply the revised cap to all fresh deposits and renewals from April 18, 2006.
- Communicate the revised rates to branches and NRE customers to stay competitive.
- Monitor LIBOR/SWAP rates monthly to set compliant rates within the ceiling.
Who it affects
State Co-operative Banks (StCBs), District Central Co-operative Banks (DCCBs), NRE depositors, Treasury and deposit operations teams
Does the new ceiling apply to deposits with maturity over three years?
Yes, the circular specifies that the rate determined for three-year deposits also applies to maturities exceeding three years.
Are existing NRE deposits affected by this change?
Only NRE deposits renewed after their present maturity period will be subject to the new ceiling. The circular does not explicitly address existing deposits under contracted rates.
What was the previous ceiling and when did it change?
The previous ceiling was LIBOR/SWAP+75 bps, effective from November 17, 2005. The new ceiling of +100 bps took effect from close of business on April 18, 2006.