RBI hikes interest for NRE deposits

“Interest rates on fresh Non-Resident (External) Rupee (NRE) Term Deposits for 1-3 years maturity should not exceed the LIBOR/SWAP rates plus 275 basis points, as on the last working day of the previous month, for US dollar of corresponding maturities,” RBI said in a notification.

The interest rates will also be applicable to deposits with the maturity period exceeding three years and to deposits renewed after their present maturity period. The interest rate on NRE deposits was LIBOR/SWAP rates, plus 175 basis points since November, 2008.

The LIBOR rate is the average interest rate that leading banks in London charge when lending to other banks. The SWAP rate is the exchange rate associated with the fixed portion of a currency swap. The revised rate will come into force with immediate effect.

“Interest rate on FCNR(B) deposits of all maturities contracted effective from the close of business in India as on November 23, 2011, will be within the ceiling rate of LIBOR/ SWAP rates plus 125 basis points for the respective currency/ corresponding maturities,” RBI further said.

The interest rate on these deposits was earlier LIBOR/ SWAP rates plus 100 basis points. The hike in rates will make such funds more attractive at a time when the rupee has depreciated sharply.