Key facts
- India's small banks are offering nonresident Indians (NRIs) interest rates of up to 7.5% on FCNR(B) deposits.
- The Reserve Bank of India (RBI) introduced a special swap facility to encourage these deposits.
- The RBI's initiative aims to boost dollar reserves and attract foreign currency inflows.
- FCNR(B) deposits are held in foreign currencies, with the RBI bearing the exchange rate risk.
- Interest on FCNR(B) deposits is tax-exempt in India for eligible non-residents.
- Banks are leveraging this to attract NRI customers and potentially offer other financial services.
India's smaller banks are leveraging a new initiative by the Reserve Bank of India (RBI) to attract deposits from nonresident Indians (NRIs) by offering significantly higher interest rates. The RBI's concessional swap facility for Foreign Currency Non-Resident (Bank) or FCNR(B) deposits, intended to bolster dollar reserves, allows banks like Equitas Small Finance Bank, AU Small Finance Bank, and IDFC First Bank to offer rates up to 7.5%. This is considerably higher than the rates offered by larger institutions such as State Bank of India and HDFC. The scheme has already seen substantial mobilization of funds, with approximately $17 billion reportedly gathered in a short period, though the exact amount of fresh money is yet to be determined. Experts anticipate overall inflows of $70-75 billion under this facility. FCNR(B) deposits are fixed deposits denominated in foreign currencies like the US dollar, British pound, euro, or Japanese yen, with the exchange rate risk borne by the RBI, not the depositor. This contrasts with NRE and NRO accounts, which are rupee-denominated. Interest earned on FCNR(B) deposits is tax-exempt in India for eligible non-residents. Banks are hopeful that attracting NRI depositors through these attractive rates will also open avenues for selling them other financial products such as insurance and investment advice.