What changed
RBI revised the interest rate ceiling on NRE term deposits from the earlier LIBOR/SWAP rates effective April 24, 2007, to a new formula: LIBOR/SWAP plus 50 bps for 1-3 year maturities, effective from close of business on September 16, 2008. The same cap applies for maturities beyond three years. The change also covers renewals of existing NRE deposits.
What it means for you
Banks must now ensure NRE deposit rates for 1-3 year tenors do not exceed the previous month's last working day LIBOR/SWAP for corresponding US dollar maturities plus 50 bps. This tightens the pricing benchmark, potentially lowering deposit costs for banks but making NRE deposits less attractive to NRIs compared to earlier higher rates. All other existing instructions remain unchanged.
What you must do
- Update NRE deposit rate slabs for 1-3 year tenors to comply with the new LIBOR/SWAP plus 50 bps ceiling effective September 16, 2008.
- Apply the same cap to NRE deposits with maturities over three years using the three-year rate.
- Ensure renewal rates for existing NRE deposits also adhere to the new ceiling.
- Communicate the revised rate structure to branch staff and NRE deposit customers.
Who it affects
Regional Rural Banks, All banks offering NRE deposit accounts, NRI depositors with NRE term deposits
What is the new interest rate ceiling for NRE term deposits?
For 1-3 year maturities, the rate must not exceed LIBOR/SWAP rates plus 50 basis points for US dollar of corresponding maturities, as on the last working day of the previous month.
Does this apply to deposits with maturities beyond three years?
Yes, the rate determined for three-year deposits also applies to maturities exceeding three years.
When did this change take effect?
The new rates are effective from close of business in India as on September 16, 2008.