What changed
Previously, banks could not offer NRE deposit rates higher than comparable domestic rupee deposits. Now, for NRE deposits with maturity of 3 years and above, banks have full freedom to set interest rates without any ceiling. The existing cap on NRO account rates remains unchanged.
What it means for you
Banks can now aggressively price long-tenor NRE deposits to attract non-resident rupee funds, especially as the CRR/SLR exemption on these deposits reduces their cost. This could intensify competition for NRE deposits among banks, potentially raising deposit costs for longer tenors. The relaxation is temporary, expiring on November 30, 2013, subject to review.
What you must do
- Review and adjust NRE deposit interest rate slabs for tenors of 3 years and above to remain competitive.
- Ensure NRO account interest rates continue to adhere to the existing ceiling.
- Monitor the temporary validity period ending November 30, 2013, and plan for potential reversion.
- Update internal systems and product literature to reflect the removal of the rate ceiling for eligible NRE deposits.
Who it affects
All scheduled commercial banks (excluding RRBs), Non-resident Indian (NRI) depositors, Treasury and asset-liability management teams, Retail banking product managers
Does this circular apply to NRO accounts as well?
No. The ceiling on NRO account interest rates continues as before. Only NRE deposits with maturity of 3 years and above are freed from the rate ceiling.
Is this deregulation permanent?
No. The instructions are valid only up to November 30, 2013, and are subject to review by RBI.
Why has RBI removed the ceiling only for longer-tenor NRE deposits?
To pass on the benefit of the CRR/SLR exemption granted on incremental NRE deposits of 3 years and above, allowing banks to offer higher rates and attract more long-term non-resident rupee funds.