What changed
The interest rate ceiling on FCNR(B) deposits for Regional Rural Banks was revised upward. For maturities of 1 year to less than 3 years, the spread over LIBOR/Swap increased from 125 bps to 200 bps. For maturities of 3 to 5 years, the spread increased from 125 bps to 300 bps. Floating rate deposits must stay within these new ceilings, with a six-month interest reset period.
What it means for you
RRBs can now offer higher rates on FCNR(B) deposits, making them more competitive for attracting foreign currency non-resident deposits. This could increase deposit inflows but also raise funding costs. The move reflects RBI's response to prevailing market conditions to help RRBs manage liquidity and interest rate risks.
What you must do
- Update FCNR(B) deposit rate slabs and system parameters to reflect the new ceilings effective May 4, 2012.
- Communicate revised rates to branches and ensure compliance with the six-month reset period for floating rate deposits.
- Review deposit pricing strategy to balance competitiveness with net interest margin impact.
- Monitor LIBOR/Swap rates regularly to ensure offered rates stay within the revised ceilings.
Who it affects
Regional Rural Banks (RRBs), RRB customers holding or opening FCNR(B) accounts, Treasury and ALM teams at RRBs
What are the new FCNR(B) interest rate ceilings for RRBs?
For deposits with maturity of 1 year to less than 3 years, the ceiling is LIBOR/Swap plus 200 bps. For 3 to 5 years, it is LIBOR/Swap plus 300 bps. Earlier, both were at plus 125 bps.
Does this circular affect floating rate FCNR(B) deposits?
Yes. Floating rate deposits must be priced within the new ceilings (swap rate plus 200 bps or 300 bps as applicable) and must have an interest reset period of six months.
When did these revised rates take effect?
The revised rates are effective from the close of business in India as on May 4, 2012, as per the directive issued on May 8, 2012.