What changed
The earlier dispensation allowing banks to set interest rates on incremental NRE deposits (3 years and above) without any ceiling, linked to CRR/SLR exemption benefits, was set to expire on January 31, 2014. RBI has now extended this flexibility by one month, up to February 28, 2014. From March 1, 2014, the old ceiling rule will be restored: NRE deposit rates cannot exceed rates on comparable domestic rupee deposits.
What it means for you
Banks get an additional month to attract NRE deposits without rate caps, which can help shore up foreign currency inflows. After February 28, the pricing advantage on longer-tenor NRE deposits disappears, potentially reducing their appeal. Lenders must plan their NRE deposit pricing strategy carefully for the transition.
What you must do
- Update NRE deposit product brochures and system rate tables to reflect the extended uncapped period until February 28, 2014.
- Prepare internal guidelines to revert NRE deposit rates to domestic comparable rates from March 1, 2014.
- Communicate the change to branch heads and treasury teams to avoid any inadvertent rate violations post-February 28.
- Monitor NRE deposit inflows during the extended window and adjust pricing strategy accordingly.
Who it affects
All scheduled commercial banks (excluding RRBs) offering NRE deposits, Treasury and asset-liability management teams, NRE deposit customers and relationship managers
What is the key change in this circular?
RBI has extended the period during which banks can offer uncapped interest rates on incremental NRE deposits of 3 years and above from January 31, 2014 to February 28, 2014. From March 1, 2014, the old ceiling rule applies again.
What happens after February 28, 2014?
From March 1, 2014, interest rates on NRE deposits cannot exceed the rates offered by the same bank on comparable domestic rupee deposits, reverting to the pre-August 14, 2013 position.
Does this affect all NRE deposits or only specific tenors?
The uncapped rate flexibility applies only to incremental NRE deposits with maturity of 3 years and above. Other NRE deposit instructions remain unchanged.