Interest on NRE and NRO accounts can’t be higher than Domestic Deposits: RBI

The Reserve Bank of India (RBI) has made significant changes to how banks price their deposits.

One of the most significant changes in the new master direction is that banks cannot provide greater interest rates on NRE (non-resident external) and NRO (non-resident ordinary) accounts than on domestic rupee term deposits.

Non-resident rupee deposits under NRE and NRO deposit rates can only alter if the tenor or size changes, with the basic tenor for term products being one year and NRO term deposits being seven days. NRE and NRO deposits should not be eligible for the advantage of higher interest rates on deposits made by bank employees or older citizens.

Commercial banks should credit interest on savings deposits quarterly or more frequently than that. Banks are not permitted to mark any sort of lien, direct or indirect, against NRE savings deposits.

Similarly, banks cannot charge a penalty for premature withdrawal of NRE term deposits for conversion into RFC (resident foreign currency) accounts.

Penalties for premature withdrawal should apply when converting NRE deposits to FCNR(B) deposits and vice versa. Interest on foreign currency deposits can only be accepted or renewed under the FCNR(B) scheme if the maturity period and deposit amount change.

The RBI amended and capped the pricing and duration of domestic and forex deposits, stating that the new guidelines provide a framework for banks to use when developing deposit rate policies.