What changed
Previously, RRBs could not offer NRE deposit rates higher than comparable domestic rupee deposits. Now, for NRE deposits with maturity of 3 years and above, RRBs have full freedom to set interest rates without any ceiling, due to CRR/SLR exemption benefits on such deposits. The existing ceiling on NRO accounts remains unchanged.
What it means for you
RRBs can now competitively price long-term NRE deposits to attract more non-resident rupee funds, potentially improving their deposit base and liquidity. However, this freedom is temporary until November 30, 2013, subject to review, so RRBs must plan their pricing strategies within this window. The move aims to pass on the benefit of regulatory relaxations to depositors.
What you must do
- Review and update your NRE deposit interest rate slabs for tenors of 3 years and above to reflect the new deregulated ceiling.
- Communicate the revised rates to your branches and ensure compliance with the directive, valid until November 30, 2013.
- Monitor market rates and competitor offerings to set attractive yet sustainable rates on long-term NRE deposits.
- Continue applying the existing ceiling on NRO account interest rates as per earlier instructions.
Who it affects
Regional Rural Banks (RRBs), NRE deposit customers of RRBs, Treasury and deposit operations teams at RRBs
Can RRBs now offer any interest rate on NRE deposits?
Only on NRE deposits with maturity of 3 years and above; for shorter tenors, the earlier ceiling (not higher than comparable domestic deposits) still applies.
Is this change permanent?
No, the instructions are valid only up to November 30, 2013, and are subject to review by RBI.
Does this affect NRO accounts?
No, the existing interest rate ceiling on NRO accounts continues unchanged.