What changed
For NRE term deposits (1-3 years), the interest rate ceiling was cut from LIBOR/SWAP plus 50 bps to LIBOR/SWAP rates. For FCNR(B) deposits of all maturities, the ceiling was reduced from LIBOR/SWAP minus 25 bps to minus 75 bps. These changes took effect from close of business on April 24, 2007.
What it means for you
Banks must lower NRE and FCNR(B) deposit rates immediately, narrowing the spread over global benchmarks. This will reduce the cost of these deposits for banks but may make them less attractive to NRIs, potentially slowing capital inflows. The move aligns with RBI's monetary tightening to curb inflation and manage liquidity.
What you must do
- Update NRE term deposit rate sheets to cap at LIBOR/SWAP rates for 1-3 year maturities, effective April 24, 2007.
- Adjust FCNR(B) deposit rates to ceiling of LIBOR/SWAP minus 75 bps for all maturities, including floating rate deposits with 6-month reset.
- Apply revised rates to fresh deposits and renewals of existing deposits after maturity.
- Communicate rate changes to branch network and NRI customers promptly.
Who it affects
All scheduled commercial banks (excluding RRBs) offering NRE and FCNR(B) deposit accounts, NRI depositors with NRE term deposits or FCNR(B) accounts, Bank treasury and ALM teams managing NRI deposit pricing
Do these new rate ceilings apply to existing NRE or FCNR(B) deposits?
No, they apply only to fresh deposits and renewals of existing deposits after their maturity, effective from close of business on April 24, 2007.
What is the ceiling for NRE deposits with maturity over 3 years?
For NRE deposits exceeding 3 years, the same ceiling as for 3-year deposits applies, i.e., LIBOR/SWAP rates for US dollar of corresponding maturity.
How should floating rate FCNR(B) deposits be priced?
Floating rate FCNR(B) deposits must have a ceiling of SWAP rates for the respective currency/maturity minus 75 bps, with an interest reset period of six months.