What changed
Previously, NRE deposit rates could not exceed comparable domestic rupee deposit rates. Now, for tenors of 3 years and above, co-operative banks can set rates without any ceiling. The NRO account rate cap stays unchanged.
What it means for you
This gives co-operative banks a competitive tool to attract longer-term NRE deposits by offering higher rates. It can help improve their foreign currency resource base and liquidity, but may also pressure margins if used aggressively. The temporary nature (till Nov 30, 2013) requires careful pricing strategy.
What you must do
- Review and update NRE deposit product offerings for 3+ year tenors to reflect uncapped rates.
- Monitor competitor rates to set competitive but sustainable NRE deposit rates.
- Ensure NRO deposit rates remain within the existing ceiling as per earlier instructions.
- Prepare for possible review or extension of this relaxation beyond November 30, 2013.
Who it affects
State Co-operative Banks (StCBs), Central Co-operative Banks (CCBs), NRE depositors, Treasury and ALM teams at co-operative banks
Can we offer higher NRE rates than domestic deposits now?
Yes, but only for NRE deposits with a maturity of 3 years or more. For shorter tenors, the old rule (not higher than comparable domestic deposits) still applies.
Does this change affect NRO accounts?
No. The existing ceiling on NRO deposit interest rates continues unchanged.
How long will this deregulation be in effect?
The instructions are valid up to November 30, 2013, and are subject to review by RBI.