What changed
The interest rate ceiling for FCNR(B) deposits with a maturity of 3 to 5 years was raised from LIBOR/Swap plus 300 basis points to plus 400 basis points. The ceiling for 1 to 3 year deposits remains unchanged at LIBOR/Swap plus 200 basis points. Floating rate deposits must use a six-month reset period and stay within the revised ceilings.
What it means for you
RRBs can now offer higher rates on 3-5 year FCNR(B) deposits, making them more competitive for attracting foreign currency deposits. This change, effective until November 30, 2013, may help RRBs improve their foreign currency deposit base but also increases their cost of funds for these deposits.
What you must do
- Update FCNR(B) deposit interest rate slabs for 3-5 year maturities to the new ceiling of LIBOR/Swap plus 400 bps.
- Ensure floating rate FCNR(B) deposits have a six-month interest reset period and comply with the revised ceilings.
- Communicate the revised rates to branches and deposit operations teams immediately.
- Monitor market LIBOR/Swap rates to price deposits competitively within the new ceiling.
Who it affects
Regional Rural Banks (RRBs), FCNR(B) deposit customers of RRBs, Treasury and deposit operations teams at RRBs
What is the new interest rate ceiling for 3-5 year FCNR(B) deposits?
The ceiling is LIBOR/Swap plus 400 basis points, up from the earlier plus 300 basis points.
Until when is this revised ceiling valid?
These instructions are valid up to November 30, 2013, subject to review.
Does this circular affect FCNR(B) deposits with maturity less than 3 years?
No, the ceiling for 1 year to less than 3 years remains unchanged at LIBOR/Swap plus 200 basis points.