Executive Summary:
This document from the Reserve Bank of India (RBI) amends the Master Directions on Interest Rates on Deposits for Scheduled Commercial Banks, Small Finance Banks, Local Area Banks, Payment Banks, Primary Urban Cooperative Banks, DCCBs and State Cooperative Banks regarding Foreign Currency Non-Resident (Banks) [FCNR(B)] deposits. The amendment allows banks to use widely accepted Overnight Alternative Reference Rates (ARR) instead of LIBOR, which is being discontinued, for FCNR(B) deposits, with an upward revision of the interest rate ceiling by 50 bps. FEDAI may publish ARR until a widely accepted benchmark is established.
Key Points / Main Content:
* **Benchmark Rate Transition:**
* Banks are permitted to use Overnight Alternative Reference Rates (ARR) for respective currencies instead of LIBOR for FCNR(B) deposits.
* The interest rate ceiling is revised upwards by 50 bps.
* **Reference Rate Publication:**
* FEDAI may publish ARR until a widely accepted benchmark is established.
* **Interest Rate Ceilings for FCNR(B) Deposits (Existing Provisions Amended):**
* Floating rate deposits' interest shall be paid within the ceiling of swap rates for the respective currency maturity.
* Fixed rate deposits' interest shall be paid within the ceiling of Overnight Alternative Reference Rate for the respective currency maturity.
* The Overnight Alternative Reference Rate for the respective currency swap rates as of the last working day of the preceding month shall form the base for fixing ceiling rates for the interest rates offered in the following month.
* Ceiling rates for deposits from 1 year to less than 3 years are based on the Overnight Alternative Reference Rate for the respective currency Swap plus 250 basis points.
* Ceiling rates for deposits from 3 years and above up to and including 5 years are based on the Overnight Alternative Reference Rate for the respective currency Swap plus 350 basis points.
* The Overnight Alternative Reference Rate for the respective currency Swap rates quoted/displayed by FEDAI shall be used as the reference for arriving at the interest rates on FCNR B deposits.
Impact Analysis:
**All Scheduled Commercial Banks including Regional Rural Banks, All Small Finance Banks, All Local Area Banks, All Payment Banks, All Primary Urban Cooperative Banks DCCBs State Cooperative Banks:**
* Impact: Banks are now allowed to use ARR instead of LIBOR for FCNR(B) deposits and must adjust their interest rate offerings accordingly. They will be impacted by the revised interest rate ceilings and the potential publication of ARR by FEDAI.
* Action Required: Banks must update their systems and processes to reflect the use of ARR, revise interest rate calculations for FCNR(B) deposits, and monitor FEDAI publications for ARR data.
Key Entities Referenced
Reserve Bank of India: The central bank of India, also known as RBI.
Foreign Currency Nonresident Accounts Banks Scheme: A scheme related to foreign currency accounts held by non-resident Indians in banks in India (FCNR B).
LIBOR: London Interbank Offered Rate, a benchmark interest rate.
Overnight Alternative Reference Rate: A widely accepted alternative reference rate (ARR) for various currencies used as a benchmark in financial transactions.
FEDAI: Foreign Exchange Dealers Association of India, an association that provides guidance and benchmarks for foreign exchange transactions.
All Scheduled Commercial Banks including Regional Rural Banks: Refers to all commercial banks including regional rural banks that are regulated by the Reserve Bank of India.
All Small Finance Banks: Refers to all Small Finance Banks that are regulated by the Reserve Bank of India.
All Primary Urban Cooperative Banks: Refers to all Primary Urban Cooperative Banks that are regulated by the Reserve Bank of India.
www.rbi.org.in
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 aboveANNEX
[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 Existing Provisions Amended Provisions
of MD
19(d) Interest on floating rate deposits Interest on floating rate deposits shall be
shall be paid within the ceiling of paid within the ceiling of swap rates for the
swap rates for the respective respective currency/ maturity and in case of
currency/ maturity and in case of fixed rate deposits, interest shall be paid
fixed rate deposits, interest shall within the ceiling of Overnight Alternative
be paid within the ceiling of LIBOR Reference Rate* for the respective
rates for the respective currency/ currency/ maturity.
maturity.
19(f) The LIBOR/SWAP rates as on the The Overnight Alternative Reference Rate*
last working day of the preceding for the respective currency /SWAP rates as
month shall form the base for fixing on the last working day of the preceding
ceiling rates for the interest rates month shall form the base for fixing ceiling
offered effective in the following rates for the interest rates offered effective
month. in the following month.
19(g) The interest rates ceiling on FCNR The interest rates ceiling on FCNR (B)
(B) deposits shall be as under: deposits shall be as under:
Period of Ceiling rate
Period of Ceiling rate
deposit
deposit
1 year to less Overnight Alternative
1 year to less LIBOR/ Swap
than 3 years Reference Rate* for
than 3 years plus 200
the respective
basis points
currency / Swap plus
250 basis points
3 years and LIBOR/ Swap
above up to and plus 300 3 years and Overnight Alternative
including 5 basis points above up to Reference Rate* for
years and including the respective
5 years currency / Swap plus
350 basis points
19(h) The LIBOR / Swap rates The Overnight Alternative Reference Rate*
quoted/displayed by Foreign for the respective currency / Swap rates
Exchange Dealers Association of quoted/displayed by Foreign Exchange
India (FEDAI) shall be used as the Dealers Association of India (FEDAI) shall
reference for arriving at the be used as the reference for arriving at the
interest rates on FCNR(B) interest rates on FCNR (B) deposits.
deposits.
2ANNEX
Master Direction – Reserve Bank of India (Co-operative Banks – Interest Rate on
Deposits) Directions, 2016
Section Existing Provisions Amended Provisions
of MD
18(d) Interest on floating rate deposits Interest on floating rate deposits shall be
shall be paid within the ceiling of paid within the ceiling of swap rates for
swap rates for the respective the respective currency/ maturity and in
currency/ maturity and in case of case of fixed rate deposits, interest shall
fixed rate deposits, interest shall be paid within the ceiling of Overnight
be paid within the ceiling of LIBOR Alternative Reference Rate* for the
rates for the respective currency/ respective currency/ maturity.
maturity.
18(f) The LIBOR/SWAP rates as on the The Overnight Alternative Reference
last working day of the preceding Rate* for the respective currency /SWAP
month shall form the base for fixing rates as on the last working day of the
ceiling rates for the interest rates preceding month shall form the base for
offered effective in the following fixing ceiling rates for the interest rates
month. offered effective in the following month.
18(g) The interest rates ceiling on FCNR The interest rates ceiling on FCNR (B)
(B) deposits shall be as under: deposits shall be as under:
Period of Ceiling rate
Period of Ceiling rate
deposit
deposit
1 year to less LIBOR/ Swap
1 year to Overnight Alternative
than 3 years plus 200
less than 3 Reference Rate* for
basis points
years the respective
currency / Swap plus
250 basis points
3 years and LIBOR/ Swap
3 years Overnight Alternative
above up to and plus 300
and above Reference Rate* for
including 5 basis points
up to and the respective
years
including 5 currency / Swap plus
years 350 basis points
18(h) The LIBOR / Swap rates The Overnight Alternative Reference
quoted/displayed by Foreign Rate* for the respective currency / Swap
Exchange Dealers Association of rates quoted/displayed by Foreign
India (FEDAI) shall be used as the Exchange Dealers Association of India
reference for arriving at the (FEDAI) shall be used as the reference
interest rates on FCNR(B) for arriving at the interest rates on FCNR
deposits. (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’).
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