What changed
The ceiling rate for FCNR(B) deposits of all maturities was increased from LIBOR/SWAP rates plus 100 basis points to plus 125 basis points, effective from close of business on November 23, 2011. For floating rate deposits, the ceiling is now SWAP rates plus 125 basis points, with a mandatory six-month interest reset period.
What it means for you
UCBs can now offer higher interest rates on FCNR(B) deposits, making them more competitive for attracting foreign currency deposits. The 25 bps increase in the spread gives banks more flexibility to price deposits, but they must stay within the new ceiling. The six-month reset rule for floating deposits ensures periodic rate adjustments align with market conditions.
What you must do
- Update FCNR(B) deposit interest rate ceilings to LIBOR/SWAP plus 125 bps for all maturities effective November 23, 2011.
- Ensure floating rate FCNR(B) deposits use SWAP plus 125 bps ceiling with a six-month reset period.
- Communicate revised rates to branches and treasury teams immediately.
- Review existing FCNR(B) deposit contracts to ensure compliance with the new directive.
Who it affects
AD Category-I Urban Co-operative Banks (UCBs), Treasury and deposit operations teams at UCBs, Customers holding or seeking FCNR(B) deposits
What is the new ceiling rate for FCNR(B) deposits?
The ceiling is LIBOR/SWAP rates plus 125 basis points for the respective currency and maturity, up from the previous 100 bps spread.
Does this apply to floating rate FCNR(B) deposits?
Yes, floating rate deposits are also capped at SWAP rates plus 125 bps, with a mandatory six-month interest reset period.
When does this change take effect?
It applies to deposits contracted from the close of business in India on November 23, 2011, until further notice.