Key facts
- The Reserve Bank of India (RBI) is encouraging banks to increase efforts to mobilize foreign currency through FCNR(B) deposits.
- Banks are raising interest rates on these deposits, with some offering up to 7.13%.
- A special foreign currency swap window, effective until September 30, aims to absorb banks' hedging costs.
- The RBI's measures are intended to strengthen forex reserves and stabilize the Indian rupee.
- The rupee depreciated nearly 11% last fiscal year and touched a record low of 96.96 against the US dollar in May.
Indian banks are increasing interest rates on Foreign Currency Non-Resident (B) deposits to attract foreign currency inflows, following recent measures by the Reserve Bank of India (RBI).
Punjab National Bank (PNB) announced it has raised rates on its FCNR(B) USD deposits, offering 6% for tenures of 3-4 years and 6.05% for 4-5 years. For a 5-year fixed deposit, PNB is offering an interest rate of 6.1%.
Ujjivan Small Finance Bank also hiked its FCNR(B) deposit rates, providing up to 7.13% for tenures ranging from 3 to 5 years.
These adjustments come after the RBI introduced a special foreign currency swap window for banks, effective until September 30. This initiative is designed to absorb the currency hedging costs that banks incur on such deposits, thereby enabling them to offer more competitive interest rates and encouraging non-resident Indians (NRIs) to deposit their earnings.
Experts anticipate that this scheme could attract approximately $60-70 billion in foreign capital. The RBI's measures are aimed at easing external funding constraints and stabilising the rupee, which depreciated nearly 11% last fiscal year and touched a record low of 96.96 against the US dollar in May before closing at 95.11 on Friday.
In a separate development, Bank of Baroda launched a new retail term deposit scheme, the 'BoB Golden Goal Deposit Scheme', a special 555-day tenor offering an interest rate of 6.75% for the general public, with higher rates for senior citizens.
The RBI's push includes a 1.5% fixed-rate swap facility for PSU ECB borrowings and the removal of restrictions on issuing letters of credit or guarantees against FCNR(B) deposits, which could amplify inflows.