What changed
The ceiling on NRE term deposits (1-3 years) was increased from LIBOR/SWAP plus 50 bps to plus 100 bps. For FCNR(B) deposits of all maturities, the ceiling moved from LIBOR/SWAP minus 25 bps to plus 25 bps. These changes took effect from close of business on October 15, 2008.
What it means for you
RRBs can now offer higher rates on NRE and FCNR(B) deposits, making them more competitive for attracting non-resident funds. The wider spreads (100 bps for NRE, 25 bps for FCNR(B)) give banks more pricing flexibility. However, the LIBOR/SWAP-linked ceiling remains, so rates will still move with global benchmarks.
What you must do
- Update your NRE and FCNR(B) deposit rate sheets to reflect the new ceilings effective October 15, 2008.
- Ensure that fresh NRE deposits (1-3 years) do not exceed LIBOR/SWAP plus 100 bps, and FCNR(B) deposits stay within LIBOR/SWAP plus 25 bps.
- Apply the revised ceilings to renewals of existing NRE deposits as well.
- For floating rate FCNR(B) deposits, set the interest reset period at six months and cap rates at SWAP plus 25 bps.
Who it affects
Regional Rural Banks (RRBs), NRE deposit customers, FCNR(B) deposit customers, Treasury and ALM teams at RRBs
Do these new ceilings apply to existing NRE deposits?
No, they apply to fresh NRE term deposits and renewals of existing deposits after maturity. Existing deposits already contracted are not affected.
What is the ceiling for NRE deposits with maturity over three years?
The same ceiling as for three-year deposits applies: LIBOR/SWAP plus 100 bps.
Are there any changes to other instructions on these deposits?
No, all other instructions issued earlier remain unchanged.