With the Reserve Bank of India (RBI) announcing a dollar swap facility for Foreign Currency Non-Resident (Bank) [FCNR(B)] deposits, banks have raised interest rates by 300-350 basis points on dollar-denominated NRI deposits, with some offering as much as 6.6% for tenures of three to five years. Earlier, FCNR(B) deposits typically offered interest rates of 3-3.5%.
Major lenders including State Bank of India, Bank of Baroda, Axis Bank, HDFC Bank and Yes Bank have increased rates on FCNR(B) deposits targeted at non-resident Indians.
Yes Bank is offering one of the highest rates in the market, at 6.6% on five-year dollar-denominated deposits. The bank is offering 6.5% for deposits with maturities of three years to less than four years and 6.55% for deposits with maturities of four years to less than five years.
Kotak Mahindra Bank has raised FCNR(B) deposit rates to a peak of 6.15% for deposits above $1 million with maturities ranging from three to five years. Deposits below $1 million in the same maturity bucket will earn 6%.
Most other banks are offering a peak rate of 6%. SBI has raised rates to 6% for deposits above $1 million with a five-year tenure, while deposits below $1 million will earn up to 5.75%. Bank of Baroda is offering 6% on US dollar deposits, 4.75% on pound sterling and Australian dollar deposits, 5.15% on Canadian dollar deposits, and 3.75% on euro deposits. The bank offers 5.5% for deposits with maturities of three years to less than four years and 5.75% for deposits with maturities of four years to less than five years.
Beena Vaheed, Executive Director, Bank of Baroda, said: “The RBI’s recent measures to encourage foreign currency inflows into the banking system have created an enabling environment for banks to strengthen their FCNR(B) offerings for the NRI community. The move is a well-calibrated and multi-pronged initiative aimed at attracting FCNR(B) deposits and strengthening the rupee.”
Private-sector lenders HDFC Bank, ICICI Bank and Axis Bank are offering a uniform interest rate of 6% on FCNR(B) deposits across maturities ranging from three to five years.
Industry estimates suggest that banks could attract fresh inflows of $20-30 billion in FCNR(B) deposits following the RBI’s latest measures aimed at boosting foreign currency inflows. A similar scheme introduced in 2013 had attracted nearly $34 billion in FCNR deposits.
FCNR(B) deposits are foreign-currency term deposits designed for NRIs. Their key advantage is that both the principal and interest are fully repatriable without restrictions. In addition, interest earned on FCNR(B) deposits is exempt from tax in India.
