What changed
The ceiling on NRE term deposits (1-3 years) was increased from LIBOR/SWAP + 50 bps to +100 bps. For FCNR(B) deposits of all maturities, the ceiling moved from LIBOR/SWAP - 25 bps to +25 bps. Floating rate FCNR(B) deposits now have a ceiling of SWAP + 25 bps with a six-month reset period.
What it means for you
Banks can now offer higher rates on NRE and FCNR(B) deposits, making them more attractive to NRIs. This should help stem outflows and boost foreign currency inflows. The wider spreads give banks more pricing flexibility but may compress margins if competition heats up.
What you must do
- Update your NRE and FCNR(B) deposit rate sheets to reflect the new ceilings immediately.
- Communicate revised rates to branch staff and ensure compliance with the October 15, 2008 effective date.
- Monitor LIBOR/SWAP rates monthly to set competitive yet compliant deposit rates.
- Review renewal pricing for existing NRE deposits maturing after October 15, 2008.
Who it affects
All scheduled commercial banks (excluding RRBs) offering NRE and FCNR(B) deposit accounts, Treasury and ALM teams managing non-resident deposit pricing, NRI customers and relationship managers
What is the new interest rate ceiling for NRE term deposits?
For fresh NRE term deposits of 1-3 years maturity, the ceiling is LIBOR/SWAP rates plus 100 basis points for the corresponding US dollar maturity, effective from October 15, 2008.
Does this change apply to existing FCNR(B) deposits?
No, the new ceiling applies only to FCNR(B) deposits contracted on or after October 15, 2008. Existing deposits are not affected.
What is the interest reset period for floating rate FCNR(B) deposits?
For floating rate FCNR(B) deposits, the interest reset period is six months, and the ceiling is SWAP rates plus 25 basis points.