What changed
The earlier circular allowing UCBs to offer uncapped interest rates on incremental NRE deposits with maturity of 3 years and above, which was valid until November 30, 2013, has been extended. The same instructions will remain unchanged until January 31, 2014, subject to review.
What it means for you
Urban Co-operative Banks can continue to attract NRE deposits by offering competitive rates without regulatory ceiling, leveraging the CRR/SLR exemption on these deposits. This extension provides short-term flexibility for deposit mobilization but requires careful monitoring of interest rate risk and funding costs.
What you must do
- Review and update NRE deposit product offerings to reflect the extended rate freedom period.
- Ensure compliance with the directive and maintain records of incremental NRE deposits availing the exemption.
- Monitor interest rate risk and cost of funds while setting rates on these deposits.
- Prepare for possible review or withdrawal of the relaxation after January 31, 2014.
Who it affects
Primary (Urban) Co-operative Banks, NRE depositors, Treasury and asset-liability management teams of UCBs
What is the key change in this circular?
The circular extends the validity of the earlier deregulation of interest rates on incremental NRE deposits of 3 years and above for UCBs until January 31, 2014, without any ceiling.
Are there any new conditions or modifications?
No, the instructions remain unchanged from the previous circular. The only change is the extension of the validity period.
Does this apply to all NRE deposits?
No, it applies only to incremental NRE deposits with a maturity of 3 years and above, which are exempt from CRR/SLR requirements.