What changed
RBI revised interest rate ceilings on FCNR(B) deposits for AD Category-1 UCBs, effective from close of business on May 4, 2012. For maturities of 1 year to less than 3 years, the ceiling increased from LIBOR/Swap plus 125 bps to plus 200 bps. For 3-5 year maturities, the ceiling rose from plus 125 bps to plus 300 bps. Floating rate deposits must use a six-month reset period and stay within the new ceilings.
What it means for you
UCBs can now offer higher rates on FCNR(B) deposits, making them more attractive to NRI depositors. This could help banks raise foreign currency deposits, but also increases funding costs. The wider spreads may improve competitiveness against other banks, but lenders must manage the higher interest expense and ensure compliance with the revised ceilings.
What you must do
- Update FCNR(B) deposit rate slabs for 1-3 year and 3-5 year maturities to the new ceilings immediately.
- Ensure floating rate deposits use a six-month interest reset period and stay within the revised swap rate plus spread limits.
- Review foreign currency lending guidelines to align with the updated deposit rates, especially for PCFC/EBR and export-related loans.
- Communicate the revised rates to branches and NRI customers to attract fresh deposits.
Who it affects
AD Category-1 Urban Cooperative Banks (UCBs), NRI depositors holding FCNR(B) accounts, Treasury and ALM teams at UCBs, Exporters availing foreign currency loans from FCNR(B) funds
What are the new FCNR(B) deposit rate ceilings for UCBs?
For 1 year to less than 3 years, the ceiling is LIBOR/Swap plus 200 bps. For 3-5 years, it is LIBOR/Swap plus 300 bps, effective May 4, 2012.
Do these changes affect floating rate FCNR(B) deposits?
Yes, floating rate deposits must have a six-month interest reset period and cannot exceed the swap rate plus 200 bps (for 1-3 year) or 300 bps (for 3-5 year) ceilings.
Can UCBs use FCNR(B) funds for foreign currency loans?
Yes, these funds can be used for pre-shipment credit in foreign currency (PCFC), rediscounting of export bills abroad (EBR), and term loans to exporters with natural hedge or risk management policies.