What changed
The interest rate ceiling on fresh NRE term deposits (1-3 years) was revised from the earlier LIBOR/SWAP rates (effective April 24, 2007) to LIBOR/SWAP rates plus 50 basis points, as on the last working day of the previous month. The same cap applies for maturities beyond three years. The change also covers renewals of existing NRE deposits.
What it means for you
StCBs and DCCBs now have a tighter margin on NRE deposits, limiting their ability to offer aggressive rates to attract NRI funds. This aligns NRE deposit pricing with global benchmarks, reducing arbitrage opportunities. Banks must recalculate their offered rates monthly based on the latest LIBOR/SWAP data.
What you must do
- Update NRE term deposit interest rate slabs to ensure rates do not exceed LIBOR/SWAP plus 50 bps for 1-3 year maturities.
- Apply the same cap to deposits with maturities over three years, using the three-year benchmark.
- Ensure renewed NRE deposits also comply with the new ceiling from the renewal date.
- Monitor LIBOR/SWAP rates on the last working day of each month to set rates for the following month.
- Communicate the revised rate structure to all branches handling NRE deposits.
Who it affects
State Co-operative Banks (StCBs), District Central Co-operative Banks (DCCBs), NRE depositors (NRIs)
Does this cap apply to NRE deposits with maturities less than one year?
No, the circular specifically addresses term deposits for one to three years' maturity. Shorter maturities are not covered by this directive.
How often should we update the offered NRE deposit rates?
Rates must be set based on LIBOR/SWAP rates as on the last working day of the previous month, so you should review and update rates monthly.
Are existing NRE deposits affected by this change?
Only deposits renewed after their present maturity period are affected. Existing deposits running their current term are not impacted until renewal.