What changed
RBI revised the interest rate ceiling on NRE term deposits for UCBs from the previous LIBOR/SWAP rates (effective April 24, 2007) to LIBOR/SWAP rates plus 50 basis points, effective from close of business on September 16, 2008. The new cap applies to fresh deposits of 1-3 year maturity and also to renewals after maturity. For deposits exceeding three years, the three-year rate ceiling applies.
What it means for you
UCBs must now ensure NRE deposit rates do not exceed the new ceiling, which is more restrictive than the earlier benchmark. This could reduce the attractiveness of NRE deposits for customers, potentially impacting deposit mobilization. Banks need to adjust their pricing strategies immediately to comply and avoid penalties under Section 35A of the Banking Regulation Act.
What you must do
- Update NRE term deposit interest rates to not exceed LIBOR/SWAP plus 50 bps for 1-3 year maturities, effective September 16, 2008.
- Apply the same ceiling to renewals of existing NRE deposits after their maturity.
- Ensure compliance with the directive and acknowledge receipt to your regional RBI office.
- Review and adjust any NRE deposit products with maturities over three years to use the three-year rate cap.
Who it affects
All Primary (Urban) Cooperative Banks, NRE depositors, Treasury and deposit operations teams at UCBs
What is the new interest rate ceiling for NRE deposits?
The ceiling is LIBOR/SWAP rates plus 50 basis points for US dollar of corresponding maturities, as on the last working day of the previous month, for deposits of 1-3 year maturity.
Does this apply to deposits with maturity over three years?
Yes, for deposits exceeding three years, the rate determined for three-year deposits applies.
When does this change take effect?
It takes effect from close of business in India on September 16, 2008.