What changed
The earlier dispensation allowing RRBs and cooperative banks to set interest rates on incremental NRE deposits of 3 years and above without any ceiling, originally valid until January 31, 2014, has been extended to February 28, 2014. After this date, the pre-August 2013 interest rate ceiling will be restored, meaning NRE deposit rates cannot exceed rates on comparable domestic rupee deposits.
What it means for you
Banks get a short additional window to attract NRE deposits without rate caps, leveraging the CRR/SLR exemption benefit. Post-February 28, they must align NRE rates with domestic deposit rates, which may reduce the attractiveness of these deposits for NRIs. This impacts liquidity and cost of funds for RRBs and cooperative banks.
What you must do
- Review and adjust NRE deposit interest rate offerings before March 1, 2014, to comply with the reimposed ceiling.
- Communicate the rate change to NRE depositors and branch staff to avoid confusion.
- Assess the impact on NRE deposit inflows and plan alternative funding strategies if needed.
- Ensure systems are updated to cap NRE rates at or below comparable domestic deposit rates from March 1.
Who it affects
Regional Rural Banks (RRBs), State/Central Cooperative Banks (StCBs/CCBs), NRE depositors, Treasury and deposit operations teams
What is the new deadline for the uncapped NRE deposit rate dispensation?
The freedom to offer uncapped interest rates on incremental NRE deposits of 3 years and above is extended until February 28, 2014.
What happens after February 28, 2014?
From March 1, 2014, the interest rate ceiling reverts to the pre-August 2013 position: NRE deposit rates cannot exceed rates on comparable domestic rupee deposits.
Does this apply to all banks?
No, this circular specifically applies to Regional Rural Banks (RRBs) and State/Central Cooperative Banks (StCBs/CCBs).