What changed
The interest rate ceiling on NRE term deposits (1-3 year maturity) was increased from LIBOR/SWAP plus 175 basis points to plus 275 basis points. For FCNR(B) deposits of all maturities, the ceiling was raised from LIBOR/SWAP plus 100 basis points to plus 125 basis points. These changes took effect from the close of business on November 23, 2011.
What it means for you
Regional Rural Banks can now offer higher rates on NRE and FCNR(B) deposits, making these products more attractive to non-resident depositors. The wider spread over LIBOR/SWAP gives RRBs more flexibility to compete for foreign currency and rupee remittances. However, the ceilings remain binding; banks must not exceed the new caps.
What you must do
- Update your NRE term deposit rate sheets to reflect the new ceiling of LIBOR/SWAP + 275 bps for 1-3 year maturities.
- Adjust FCNR(B) deposit rates for all maturities to stay within the revised ceiling of LIBOR/SWAP + 125 bps.
- Ensure floating rate FCNR(B) deposits use a six-month reset period and remain within the SWAP + 125 bps ceiling.
- Apply the new rates to all fresh deposits and renewals of existing deposits from November 23, 2011 onward.
Who it affects
Regional Rural Banks (RRBs), Non-resident depositors holding NRE or FCNR(B) accounts, Treasury and deposit operations teams at RRBs
Do these new ceilings apply to existing NRE deposits that are being renewed?
Yes, the circular states that the changes also apply to NRE deposits renewed after their present maturity period.
What is the ceiling for NRE deposits with maturity beyond three years?
The rate determined for three-year deposits (LIBOR/SWAP + 275 bps) will also apply to deposits with maturity exceeding three years.
Are there any changes to other instructions on NRE or FCNR(B) accounts?
No, all other instructions issued earlier remain unchanged.