What changed
The ceiling rate on FCNR(B) deposits of all maturities was increased from LIBOR/SWAP rates plus 25 basis points to plus 100 basis points, effective from close of business on November 15, 2008. For floating rate deposits, the ceiling is now SWAP rates plus 100 bps with a six-month reset period. This supersedes the earlier directive dated October 15, 2008.
What it means for you
UCBs can now offer significantly higher interest rates on FCNR(B) deposits, making them more competitive against other instruments. This move aims to attract foreign currency deposits and improve dollar liquidity for UCBs. The wider spread also gives UCBs more flexibility to price deposits based on market conditions.
What you must do
- Update FCNR(B) deposit product rates to reflect the new ceiling of LIBOR/SWAP plus 100 bps for all maturities.
- Ensure floating rate deposits have a six-month interest reset period as mandated.
- Communicate the revised rates to branches and customers to leverage the higher ceiling for deposit mobilization.
- Acknowledge receipt of this circular to your respective Regional Office.
Who it affects
AD Category-I Urban Co-operative Banks (UCBs), FCNR(B) deposit customers of these UCBs, Treasury and deposit operations teams at UCBs
What is the new interest rate ceiling for FCNR(B) deposits?
The ceiling is LIBOR or SWAP rates plus 100 basis points for the respective currency and maturity, effective from November 15, 2008.
Does this apply to floating rate FCNR(B) deposits?
Yes, floating rate deposits also have a ceiling of SWAP rates plus 100 bps, with a mandatory six-month interest reset period.
When did this change take effect?
It took effect from the close of business in India on November 15, 2008, and remains until further notice.