What changed
The interest rate ceiling on fresh NRE term deposits for 1-3 years was lowered from LIBOR/SWAP plus 100 basis points to plus 50 basis points. This change took effect from close of business on January 31, 2007, and also applies to deposits with maturities exceeding three years and to renewals of existing deposits.
What it means for you
Regional Rural Banks must now cap NRE deposit rates for 1-3 year tenors at a lower spread over LIBOR/SWAP, reducing their cost of funds for these deposits. The move aims to moderate the sharp inflow of NRE deposits and curb the associated rise in advances against such deposits, especially to high net worth individuals.
What you must do
- Update NRE deposit interest rate slabs to ensure rates do not exceed LIBOR/SWAP plus 50 bps for all tenors.
- Apply the new ceiling to all fresh NRE deposits booked from January 31, 2007, and to renewals of existing deposits.
- Review and adjust any promotional or special NRE deposit schemes to comply with the revised cap.
- Communicate the change to treasury and deposit operations teams for immediate implementation.
Who it affects
Regional Rural Banks
Does the new rate ceiling apply to NRE deposits with maturity beyond three years?
Yes, the interest rate determined for three-year deposits under the new ceiling also applies to deposits with maturities exceeding three years.
When exactly did this change take effect?
The revised ceiling became effective from the close of business in India on January 31, 2007.
Are existing NRE deposits affected by this circular?
Existing deposits are not affected, but any renewal after their current maturity must comply with the new lower ceiling.