What changed
The ceiling rate for FCNR(B) deposits of all maturities was revised from LIBOR/SWAP rates minus 75 basis points to minus 25 basis points, effective from close of business on September 16, 2008. For floating rate deposits, the ceiling is now SWAP rates minus 25 basis points with a six-month reset period.
What it means for you
UCBs can now offer more competitive rates on FCNR(B) deposits, potentially attracting more foreign currency inflows. This change increases the cost of funds for banks but may help in mobilizing longer-term foreign currency deposits. The narrower spread over LIBOR/SWAP reflects a tighter monetary stance.
What you must do
- Update your FCNR(B) deposit rate sheets to reflect the new ceiling of LIBOR/SWAP minus 25 bps for all maturities.
- Ensure floating rate deposits are priced within SWAP rates minus 25 bps with a six-month reset period.
- Communicate the revised rates to all branches and treasury desks immediately.
- Acknowledge receipt of this circular to your respective Regional Office.
Who it affects
AD Category-I Urban Co-operative Banks (UCBs), Treasury departments of UCBs, Depositors holding or seeking FCNR(B) accounts
What is the new interest rate ceiling for FCNR(B) deposits?
The ceiling is LIBOR or SWAP rates minus 25 basis points for the respective currency and maturity, effective September 16, 2008.
Does this apply to floating rate FCNR(B) deposits?
Yes, floating rate deposits must be within SWAP rates minus 25 bps, with a six-month interest reset period.
Are any other terms of FCNR(B) deposits changed?
No, all other terms and conditions remain unchanged as per the previous circular.