What changed
The ceiling on NRE term deposit rates for UCBs was increased from LIBOR/SWAP plus 75 basis points to plus 100 basis points. This applies to fresh deposits of 1-3 years maturity. For deposits with maturity beyond three years, the rate determined for three-year deposits applies. The new rates are effective from close of business on April 18, 2006, and also cover renewals of existing NRE deposits.
What it means for you
UCBs can now offer higher rates on NRE deposits, making them more competitive against other banks and instruments. This could help attract more NRI funds, but also raises the cost of funds for these banks. The move signals RBI's intent to align NRE deposit rates with global market conditions while giving UCBs more flexibility.
What you must do
- Update your NRE term deposit rate slabs to reflect the new ceiling of LIBOR/SWAP plus 100 bps for 1-3 year maturities.
- Ensure the revised rates are applied to all fresh NRE deposits booked from April 18, 2006, and to renewals of existing deposits.
- Communicate the rate change to your treasury and branch operations teams for consistent implementation.
- Monitor LIBOR/SWAP rates monthly to set compliant deposit rates within the new ceiling.
Who it affects
Primary (Urban) Co-operative Banks, NRE depositors (Non-Resident Indians), Treasury and deposit operations teams at UCBs
Does the new rate cap apply to NRE savings accounts as well?
No, this circular specifically addresses NRE term deposits. Savings account interest rates on NRE deposits are governed by separate instructions.
What is the reference rate for the LIBOR/SWAP cap?
The cap uses the LIBOR or SWAP rates for US dollar of corresponding maturities, as on the last working day of the previous month.
Are existing NRE deposits affected by this change?
Only NRE deposits renewed after their present maturity period will be subject to the new rate ceiling. Existing deposits continue under their contracted rates.