What changed
For NRE term deposits (1-3 years), the maximum interest rate was increased from LIBOR/SWAP plus 100 bps to plus 175 bps. For FCNR(B) deposits of all maturities, the ceiling was raised from LIBOR/SWAP plus 25 bps to plus 100 bps. Floating rate FCNR(B) deposits now use SWAP rates plus 100 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 boost non-resident foreign currency inflows and ease domestic liquidity. However, higher deposit costs may compress net interest margins for banks, especially those with large NRE/FCNR(B) books.
What you must do
- Update NRE and FCNR(B) deposit rate slabs to reflect the new ceilings effective November 15, 2008.
- Communicate revised rates to branches and NRI customers to capture inflows.
- Monitor LIBOR/SWAP rates monthly to ensure compliance with the ceiling calculation.
- Review asset-liability management to manage the impact of higher deposit costs on margins.
Who it affects
All scheduled commercial banks (excluding RRBs) offering NRE/FCNR(B) deposits, NRI depositors and remittance channels, Treasury and ALM desks managing foreign currency liabilities
What is the new NRE deposit rate ceiling?
For fresh NRE term deposits of 1-3 years, the rate cannot exceed LIBOR/SWAP plus 175 bps (up from plus 100 bps), based on the last working day of the previous month for corresponding USD maturities.
Does this apply to renewals of existing NRE deposits?
Yes, the revised ceiling applies to NRE deposits renewed after their current maturity period, effective from November 15, 2008.
What changed for FCNR(B) floating rate deposits?
Floating rate FCNR(B) deposits now have a ceiling of SWAP rates plus 100 bps, with a mandatory six-month interest reset period.