What changed
The earlier circular had set FCNR(B) rate ceilings valid until November 30, 2013, later extended to January 31, 2014. Now, RBI has further extended the same ceilings until February 28, 2014, giving banks additional time. From March 1, 2014, the ceiling for 3-5 year deposits will revert to the pre-August 14, 2013 level of LIBOR/Swap plus 300 bps, while the 1-3 year ceiling stays at LIBOR/Swap plus 200 bps.
What it means for you
UCBs get a short reprieve to adjust their FCNR(B) deposit pricing before the tighter cap on longer-tenor deposits kicks in. The reduction in the 3-5 year ceiling by 100 bps will compress margins on these deposits, potentially making them less attractive for customers. Banks should review their FCNR(B) portfolio and funding strategy ahead of the March 1 deadline.
What you must do
- Communicate the revised rate ceilings to your treasury and deposit operations teams immediately.
- Review your current FCNR(B) deposit rates and ensure compliance with the ceilings effective from March 1, 2014.
- Assess the impact on deposit mobilisation and funding costs, especially for 3-5 year tenors.
- Update your systems and product literature to reflect the new ceiling from March 1, 2014.
Who it affects
All AD Category-1 Urban Co-operative Banks (UCBs), Treasury departments of UCBs, Deposit operations teams of UCBs
What is the new FCNR(B) interest rate ceiling for 3-5 year deposits from March 1, 2014?
From March 1, 2014, the ceiling for 3-5 year FCNR(B) deposits will be LIBOR/Swap plus 300 basis points, reduced from the current LIBOR/Swap plus 400 basis points.
Does the 1-3 year FCNR(B) deposit ceiling change?
No, the ceiling for 1-3 year FCNR(B) deposits remains unchanged at LIBOR/Swap plus 200 basis points both before and after March 1, 2014.
Until when are the current FCNR(B) rate ceilings valid?
The current ceilings, as prescribed in the circular dated August 21, 2013, are valid until February 28, 2014.