What changed
The earlier dispensation allowing banks to offer uncapped interest rates on incremental NRE deposits with maturity of 3 years and above, initially valid till November 30, 2013 and later extended to January 31, 2014, has been further extended to February 28, 2014. From March 1, 2014, the interest rate ceiling will revert to the pre-August 30, 2013 position, meaning NRE deposit rates cannot exceed comparable domestic rupee deposit rates.
What it means for you
Urban co-operative banks get an additional month to offer higher NRE deposit rates to attract non-resident rupee deposits without CRR/SLR cost. Post-February 28, the pricing flexibility ends, and banks must align NRE rates with domestic rates, potentially reducing their appeal. Banks should use this window to lock in NRE deposits or adjust liability strategies.
What you must do
- Review NRE deposit pricing strategies to maximize inflows before March 1, 2014 deadline.
- Communicate the rate change timeline to branch heads and NRE relationship managers.
- Prepare for post-Feb 28 reversion: ensure systems cap NRE rates at domestic deposit benchmarks.
- Assess impact on NRE deposit book and liquidity position from March 1 onwards.
Who it affects
Primary (Urban) Co-operative Banks, NRE deposit customers, Treasury and ALM teams of urban co-operative banks
What is the key change in this circular?
RBI extends the freedom to offer uncapped interest rates on incremental NRE deposits of 3 years and above until February 28, 2014. From March 1, 2014, rates must not exceed comparable domestic rupee deposit rates.
Why did RBI extend this dispensation?
To give banks more time to adjust to the earlier deregulation and continue benefiting from CRR/SLR exemption on these deposits, which allows them to offer higher rates without reserve costs.
What happens after February 28, 2014?
The interest rate ceiling on NRE deposits will revert to pre-August 30, 2013 norms, meaning rates cannot be higher than those on comparable domestic rupee deposits.