What changed
The RBI has extended the existing FCNR(B) deposit interest rate ceilings for Regional Rural Banks and State/Central Cooperative Banks until February 28, 2014. From March 1, 2014, the ceiling for deposits with a maturity of 3 to 5 years will revert to LIBOR/Swap plus 300 basis points, down from the current LIBOR/Swap plus 400 basis points. The ceiling for deposits of 1 year to less than 3 years remains unchanged at LIBOR/Swap plus 200 basis points.
What it means for you
Banks get a short extension to adjust their FCNR(B) deposit pricing strategies before the rate ceiling tightens for longer-tenor deposits. The reduction in the 3-5 year ceiling from March 1 will likely lower the cost of these foreign currency deposits for banks. This move aims to align FCNR(B) rates with broader market conditions while giving banks time to manage their liability profiles.
What you must do
- Review your FCNR(B) deposit pricing for 3-5 year tenors to ensure compliance with the new ceiling of LIBOR/Swap plus 300 bps from March 1, 2014.
- Communicate the revised rate ceiling to your treasury and deposit operations teams to avoid any breaches after February 28.
- Assess the impact on your foreign currency deposit mobilization and adjust your funding mix if needed before the change takes effect.
- Update your internal systems and product documentation to reflect the new interest rate ceiling for 3-5 year FCNR(B) deposits.
Who it affects
Regional Rural Banks (RRBs), State Cooperative Banks (StCBs), Central Cooperative Banks (CCBs), Treasury and deposit operations teams at these banks
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 interest rate ceiling for 1-3 year FCNR(B) deposits change?
No, the ceiling for 1 year to less than 3 years remains unchanged at LIBOR/Swap plus 200 basis points.
Which banks are affected by this circular?
This circular applies to all Regional Rural Banks (RRBs), State Cooperative Banks (StCBs), and Central Cooperative Banks (CCBs).