What changed
Previously, interest rates on NRE deposits and NRO savings accounts were regulated by RBI. Now, co-operative banks can determine these rates themselves, subject to the cap that they cannot be higher than rates on comparable domestic rupee deposits. The deregulation applies to fresh deposits and renewals only.
What it means for you
Co-operative banks gain flexibility to competitively price NRE and NRO deposits, potentially attracting more non-resident funds. However, the cap linking rates to domestic deposits prevents aggressive rate wars. Banks must monitor external liabilities and ensure asset-liability compatibility to manage systemic risk.
What you must do
- Obtain Board or ALCO approval before setting new NRE/NRO deposit rates.
- Ensure offered rates on NRE/NRO deposits do not exceed comparable domestic rupee deposit rates.
- Apply uniform rates across all branches for these deposits.
- Monitor external liabilities arising from these deposits and maintain asset-liability compatibility.
- Apply revised rates only to fresh deposits and renewals of maturing deposits.
Who it affects
State Co-operative Banks (StCBs), District Central Co-operative Banks (DCCBs), NRE and NRO depositors, Treasury and ALCO teams at co-operative banks
Can we offer higher rates on NRE deposits than on domestic deposits?
No. The circular explicitly states that interest rates on NRE and NRO deposits cannot be higher than those offered on comparable domestic rupee deposits.
Does this deregulation apply to existing deposits?
No. The revised rates apply only to fresh deposits and on renewal of maturing deposits, not to existing deposits.
Do we need board approval for every rate change?
Prior approval of the Board or the Asset Liability Management Committee (if powers are delegated) is required when fixing interest rates on these deposits.