The Reserve Bank of India has 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 an upward revision in the interest rates ceiling by 50 basis points (bps).

This comes in view of the impending discontinuance of LIBOR (London Inter-Bank Offered Rate) as a benchmark rate.

As a measure to handle the information asymmetry during the transition, the Foreign Exchange Dealers Association of India (FEDAI) may publish the ARR till such time the widely-accepted benchmark is established, the central bank said in a circular to banks.

The RBI said the interest rates ceiling on FCNR (B) deposits of 1 year to less than 3 years shall be overnight ARR for the respective currency / Swap plus 250 bps against LIBOR/ Swap plus 200 bps now.

Further, the interest rates ceiling on FCNR (B) deposits of 3 years and above up to and including 5 years shall be overnight ARR for the respective currency / Swap plus 350 bps against LIBOR/ Swap plus 300 bps now.

Foreign Currency (Non-Resident) Account (Banks) scheme allows non-resident Indians (NRIs) and Person of Indian Origin (PIO) to open a term deposit account (for terms not less than 1 year and not more than 5 years) in India in any permitted currency — that is a foreign currency which is freely convertible.

Such accounts may be held jointly in the names of two or more NRIs/ PIOs. NRIs/ PIOs can also hold such accounts jointly with a resident relative on ‘former or survivor’ basis (relative as defined in Companies Act, 2013).

The resident relative can operate the account as a Power of Attorney holder during the life time of the NRI/ PIO account holder.

RBI said the overnight ARR 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) deposit.

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