Reserve Bank of India has fixed the interest rates on NRE deposits by
capping it at 250 bp(2.50 per cent) above the London Inter Bank Offer
Rate (LIBOR)/SWAP rates for corresponding maturity for one to three
years. The new rates will be effective from July 17 and will be
applicable to fresh deposits and deposits renewed after their present
maturity. The rates on Foreign Currency Non-Resident deposit,
however, remains unchanged at 25 basis points minus LIBOR/SWAP of the
corresponding maturity. NRE deposits received during the month will
be offered a rate at 250 basis points over the Libor ruling at the
end of previous month.

Earlier, the banks had the discretion to charge the interest rates
which had resulted in some banks offering very high rates to attract
NRI deposits. Most commercial banks used to offer 5 per cent interest
on NRE term deposits in the 1-3 year tenor and around 5.25 per cent
for deposits over three years. However with the cap, the banks could
pay only 3.70 per cent for deposits in the 1-3 year maturity.

Source: Banknet India's "Handbook for NRIs, PIOs & OCBs", edited by
Senior Bankers, is invaluable reference tool and ready reckoner for
the Non Resident community (NRIs/PIOs/OCBs)
Click here for more details:
http://www.banknetindia.com/books/handbook.htm