What changed
Previously, interest rates on NRE deposits and NRO savings accounts were regulated. Now, banks can determine these rates freely, subject to the cap that they cannot be higher than rates on comparable domestic rupee deposits. This applies to fresh deposits and renewals only.
What it means for you
Urban co-operative banks gain pricing flexibility to compete for non-resident deposits, potentially improving their liability franchise. However, the cap linking NRE/NRO rates to domestic deposit rates prevents aggressive pricing. Banks must monitor external liability and ensure asset-liability compatibility, adding to ALM complexity.
What you must do
- Obtain Board/ALCO approval for new NRE/NRO deposit rate slabs immediately.
- Ensure uniform NRE/NRO deposit rates across all branches at any given time.
- Review and adjust systems to apply revised rates only to fresh deposits and renewals.
- Strengthen ALM monitoring to track external liability and systemic risk from deregulated deposits.
Who it affects
All Primary (Urban) Co-operative Banks, Treasury and ALM teams, Branch operations handling NRE/NRO accounts, Compliance and risk management departments
Can we offer NRE deposit rates higher than our domestic term deposit rates?
No. The circular explicitly states that NRE and NRO deposit rates cannot be higher than the rates offered on comparable domestic rupee deposits.
Does this deregulation apply to existing NRE/NRO deposits?
No. The revised rates apply only to fresh deposits and renewals of maturing deposits. Existing deposits continue at their contracted rates.
Do we need board approval for every rate change?
Prior approval of the Board or the Asset Liability Management Committee (if powers are delegated by the Board) is required when fixing interest rates on these deposits.