Banks across India are once again raising interest rates on foreign currency non-resident (bank) [FCNR(B)] deposits, with some lenders now offering returns of more than 7 percent after the Reserve Bank of India (RBI) temporarily lifted the interest-rate ceiling on select foreign currency deposits.
The move is expected to intensify competition among banks seeking to attract overseas funds, particularly from non-resident Indians (NRIs).
The RBI's decision, announced as part of its revised deposit interest rate framework, allows banks to freely determine rates on fresh FCNR(B) deposits of three-year and five-year maturities until September 30, 2026. The relaxation is aimed at boosting foreign currency inflows and strengthening the country's external sector amid global economic uncertainties.
Following the RBI's move, several banks have revised their FCNR(B) deposit rates upward.
Punjab National Bank (PNB) has increased rates on FCNR(B) deposits of $1 million and above to 6.60 percent for tenures between three and five years.
For deposits below $1 million, PNB now offers 6.50 percent, compared with the earlier range of 6.0-6.10 percent.
South Indian Bank has revised its rate to 6.50 percent for FCNR(B) deposits with maturities of three to five years.
Bandhan Bank has introduced a separate slab for deposits above $1 million, offering 7.10 percent, while deposits up to $1 million continue to earn 7 percent.
Equitas Small Finance Bank has launched a five-year FCNR(B) deposit product offering 7.13 percent per annum.
Industry observers expect more lenders to follow suit in the coming weeks as competition for NRI deposits intensifies.
Ujjivan Small Finance Bank is also preparing to increase its FCNR(B) rates beyond the current 7.13 percent.
According to Hitendra Jha, Head of Retail Liabilities, TASC and TPP at Ujjivan Small Finance Bank, the lender is evaluating the extent of the rate increase following the removal of the RBI cap.
The bank's earlier FCNR(B) rate hike reportedly attracted around ₹100 crore in deposits within a month. Encouraged by the response, the bank expects to mobilise three to four times that amount after the latest revision.
FCNR(B) deposits allow NRIs to park foreign currency savings in Indian banks without taking exchange-rate risk, as both principal and interest are repaid in the same foreign currency. Deposits can be maintained in major currencies such as the US dollar, pound sterling, euro, Japanese yen, Australian dollar and Canadian dollar.
Higher FCNR(B) rates are often used by banks and policymakers to attract foreign currency inflows during periods when the country seeks to bolster reserves or ease pressure on external financing.
Alongside the deregulation, the RBI has directed banks to report FCNR(B) deposit mobilisation and external commercial borrowing (ECB) data on a daily basis. The move indicates the central bank's intent to closely monitor the impact of the temporary relaxation and the pace of foreign currency inflows.
With rates crossing the 7 percent mark at several lenders and the regulatory window remaining open until September-end, FCNR(B) deposits are likely to emerge as a key avenue for banks to strengthen their foreign currency liabilities and tap the vast NRI savings pool.
