What changed
The ceiling on NRE term deposit rates for UCBs was increased from LIBOR/SWAP plus 100 basis points to plus 175 basis points for 1-3 year maturities. The new cap took effect from close of business on November 15, 2008, and also applies to deposits exceeding three years and renewals.
What it means for you
UCBs can now offer higher rates on NRE deposits, making them more competitive for attracting NRI funds. This move likely aimed to stem outflows or boost foreign currency inflows during the 2008 financial crisis. Banks need to recalibrate their NRE deposit pricing strategies within the new ceiling.
What you must do
- Update NRE term deposit interest rate slabs to ensure they do not exceed LIBOR/SWAP plus 175 bps for 1-3 year maturities.
- Apply the new ceiling to all fresh NRE deposits booked from November 15, 2008, and to renewals of existing deposits.
- Communicate the revised rate structure to branches and NRI customers promptly.
- Monitor LIBOR/SWAP rates monthly to compute the applicable ceiling for the following month.
Who it affects
All Primary (Urban) Cooperative Banks, NRI depositors holding NRE accounts with UCBs, Treasury and deposit pricing teams at UCBs
Does the new rate cap apply to NRE deposits with maturity beyond three years?
Yes, the circular specifies that the rate determined for three-year deposits will also apply to deposits with maturity exceeding three years.
Are existing NRE deposits affected by this change?
The new ceiling applies to fresh deposits booked after November 15, 2008, and to renewals of existing deposits upon maturity. Existing deposits before that date are not affected.
How is the LIBOR/SWAP rate determined for computing the ceiling?
The ceiling is based on the LIBOR/SWAP rates for US dollar of corresponding maturities as on the last working day of the previous month.