RBI Master Direction on Interest Rate on Deposits

Last updated: 12 November 2021

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The Reserve Bank of India (RBI) has issued a master direction updating the interest rate policy for Foreign Currency (Non-resident) Accounts (Banks) [FCNR(B)] deposits. Due to the discontinuation of LIBOR, banks can now offer interest rates based on widely accepted Overnight Alternative Reference Rates (ARRs) for the respective currency. This change also includes an upward revision in the interest rate ceiling by 50 basis points for these deposits.

RBI/2021-2022/123
DOR.SOG (SPE).REC.No 67/13.03.00/2021-22

November 11, 2021

All Scheduled Commercial Banks (including Regional Rural Banks)
All Small Finance Banks
All Local Area Banks
All Payment Banks
All Primary (Urban) Co-operative Banks/ DCCBs /State Cooperative Banks

Dear Sir / Madam,

Foreign Currency (Non-resident) Accounts (Banks) Scheme [FCNR(B)] - Master Direction on Interest Rate on Deposits

Please refer to the instructions on the Foreign Currency (Non-resident) Accounts (Banks) Scheme contained in Section 19 of the Master Direction - Reserve Bank of India (Interest Rate on Deposits) Directions, 2016 dated March 03, 2016 and Section 18 of the Master Direction – Reserve Bank of India (Co-operative Banks – Interest Rate on Deposits) Directions, 2016 dated May 12, 2016.

2. In view of the impending discontinuance of LIBOR as a benchmark rate, it has been decided to permit banks to offer interest rates on FCNR (B) deposits using widely accepted ‘Overnight Alternative Reference Rate (ARR) for the respective currency’ with upward revision in the interest rates ceiling by 50 bps.

3. As a measure to handle the information asymmetry during the transition, FEDAI may publish the ARR till such time the widely accepted benchmark is established. The relevant sections of the Master Directions as amended are indicated in the Annex.

4. All other instructions in this regard shall remain unchanged.

Yours faithfully,

(Neeraj Nigam)
Chief General Manager-in-Charge
Encl: As above

ANNEX

[Encl. to circular DOR.SOG(SPE).REC.No 67/13.03.00/2021-22 dated Nov 11, 2021]

Master Direction - Reserve Bank of India (Interest Rate on Deposits) Directions, 2016

Section of MD

Existing Provisions

Amended Provisions

19(d)

Interest on floating rate deposits shall be paid within the ceiling of swap rates for the respective currency/ maturity and in case of fixed rate deposits, interest shall be paid within the ceiling of LIBOR rates for the respective currency/ maturity.

19(f)

The LIBOR/SWAP rates as on the last working day of the preceding month shall form the base for fixing ceiling rates for the interest rates offered effective in the following month.

The Overnight Alternative Reference Rate* for the respective currency /SWAP rates as on the last working day of the preceding month shall form the base for fixing ceiling rates for the interest rates offered effective in the following month.

19(g)

The interest rates ceiling on FCNR (B) deposits shall be as under:

Period of deposit	Ceiling rate
1 year to less than 3 years	LIBOR/ Swap plus 200 basis points
3 years and above up to and including 5 years	LIBOR/ Swap plus 300 basis points

The interest rates ceiling on FCNR (B) deposits shall be as under:

Period of deposit	Ceiling rate
1 year to less than 3 years	Overnight Alternative Reference Rate* for the respective currency / Swap plus 250 basis points
3 years and above up to and including 5 years	Overnight Alternative Reference Rate* for the respective currency / Swap plus 350 basis points

19(h)

The LIBOR / Swap rates quoted/displayed by Foreign Exchange Dealers Association of India (FEDAI) shall be used as the reference for arriving at the interest rates on FCNR(B) deposits.

The Overnight Alternative Reference Rate* for the respective currency / Swap rates quoted/displayed by Foreign Exchange Dealers Association of India (FEDAI) shall be used as the reference for arriving at the interest rates on FCNR (B) deposits.

Master Direction – Reserve Bank of India (Co-operative Banks – Interest Rate on Deposits) Directions, 2016

Section of MD

Existing Provisions

Amended Provisions

18(d)

18(f)

The LIBOR/SWAP rates as on the last working day of the preceding month shall form the base for fixing ceiling rates for the interest rates offered effective in the following month.

18(g)

The interest rates ceiling on FCNR (B) deposits shall be as under:

Period of deposit	Ceiling rate
1 year to less than 3 years	LIBOR/ Swap plus 200 basis points
3 years and above up to and including 5 years	LIBOR/ Swap plus 300 basis points

The interest rates ceiling on FCNR (B) deposits shall be as under:

Period of deposit	Ceiling rate
1 year to less than 3 years	Overnight Alternative Reference Rate* for the respective currency / Swap plus 250 basis points
3 years and above up to and including 5 years	Overnight Alternative Reference Rate* for the respective currency / Swap plus 350 basis points

18(h)

The LIBOR / Swap rates quoted/displayed by Foreign Exchange Dealers Association of India (FEDAI) shall be used as the reference for arriving at the interest rates on FCNR(B) deposits.

*Alternative Reference Rate (ARR) refers to any widely accepted ARR for the respective currency (Ref: RBI circular CO.FMRD.DIRD.S39/14.02.001/2021-22 dated July 08, 2021 on ‘Roadmap for LIBOR Transition’).

FAQ :

The main change is the shift from using LIBOR as a benchmark rate to using widely accepted Overnight Alternative Reference Rates (ARRs) for the respective currency when setting interest rates on FCNR(B) deposits.

The change is being made because of the impending discontinuation of LIBOR as a benchmark rate.

Yes, the interest rate ceilings have been revised upwards by 50 basis points. For deposits between 1 to less than 3 years, the ceiling is now ARR/Swap plus 250 basis points, and for deposits of 3 years and above up to 5 years, it's ARR/Swap plus 350 basis points.

FEDAI may publish the ARR rates until a widely accepted benchmark is established, to help manage information asymmetry.

Yes, all other instructions in this regard remain unchanged.

Notification No : RBI/2021-2022/123 DOR.SOG (SPE).REC.No 67/13.03.00/2021-22
Source : https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=12191&Mode=0

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