What changed
RBI has temporarily withdrawn the interest rate ceiling on incremental FCNR(B) deposits for the period July 7 to October 31, 2022. Additionally, the restriction that NRE deposit rates cannot exceed comparable domestic rupee term deposit rates has been temporarily lifted for incremental NRE deposits during the same period. These relaxations do not apply to NRO deposits.
What it means for you
Banks can now offer more competitive rates on fresh FCNR(B) and NRE deposits to attract foreign currency inflows and non-resident rupee deposits. This flexibility helps banks manage liquidity and funding costs, especially in a rising rate environment. The temporary nature means banks should plan their deposit mobilization strategies within this window.
What you must do
- Review and adjust interest rates on incremental FCNR(B) and NRE deposits to optimize inflows within the relaxation period.
- Ensure compliance that the relaxation applies only to incremental deposits, not existing ones, and does not extend to NRO deposits.
- Monitor market conditions and competitor rates to set attractive yet sustainable deposit rates.
- Prepare for a possible review or withdrawal of the relaxation after October 31, 2022.
Who it affects
All Scheduled Commercial Banks including Regional Rural Banks, Small Finance Banks, Local Area Banks, Payment Banks, Primary (Urban) Co-operative Banks, District Central Co-operative Banks, State Co-operative Banks
Does this relaxation apply to all FCNR(B) and NRE deposits or only new ones?
The relaxation applies only to incremental deposits mobilized during the period July 7 to October 31, 2022. Existing deposits are not affected.
Are NRO deposits also covered under this relaxation?
No, the relaxation explicitly does not apply to Ordinary Non-Resident (NRO) deposits.
What happens after October 31, 2022?
The concessions are temporary and subject to review. Banks should be prepared for the previous interest rate restrictions to be reinstated unless RBI extends or modifies the relaxation.