Nre Deposit Rates Capped

The RBI on Thursday capped the interest rates on fresh non-resident (external) rupee (NRE) deposits for 1-3 years at 250 basis points above the London Inter-Bank Offered Rate (Libor).

The move is meant to kill the arbitrage opportunities that exist on account of the relatively higher interest rates Indian banks offer on NRE deposits.

Most commercial banks now offer 5 per cent interest on NRE term deposits in the 1-3 year maturity bucket and 5.25 per cent interest on deposits of over three years.

Since the one-year Libor is now hovering around 1.2 per cent, the banks will now pay NRE deposit holders about 3.70 per cent for deposits in the 1-3 year maturity bucket. The RBI