What changed
The ceiling on NRE term deposit rates for 1-3 year maturities was increased from LIBOR/SWAP plus 100 basis points to plus 175 basis points, effective from close of business on November 15, 2008. The same cap applies for deposits exceeding three years. Renewals after maturity also fall under the new ceiling.
What it means for you
StCBs and DCCBs can now offer higher rates on NRE deposits, making them more attractive to NRIs. This may help mobilize foreign currency inflows but could compress net interest margins if lending rates don't adjust. The move signals RBI's intent to support deposit growth amid global financial stress.
What you must do
- Update NRE deposit rate slabs to reflect the new ceiling of LIBOR/SWAP plus 175 bps for 1-3 year tenors.
- Apply the revised cap to all fresh NRE deposits booked from November 15, 2008, and renewals thereafter.
- Ensure compliance with the November 2, 1987 directive on other NRE deposit terms, which remains unchanged.
- Monitor LIBOR/SWAP rates monthly to set rates within the prescribed ceiling.
Who it affects
State Co-operative Banks (StCBs), District Central Co-operative Banks (DCCBs), NRI depositors holding NRE accounts
Does the new rate cap apply to NRE deposits with maturity beyond three years?
Yes, the cap for three-year deposits (LIBOR/SWAP plus 175 bps) also applies to deposits with maturity exceeding three years.
Are existing NRE deposits affected by this change?
No, only fresh deposits booked on or after November 15, 2008, and renewals of existing deposits after their maturity are subject to the new ceiling.