Indian banks are raising rates on foreign currency non-resident (FCNR(B)) deposits and pairing them with loans to attract non-resident Indians (NRIs), after the Reserve Bank of India (RBI) agreed to bear the hedging cost on fresh deposits. State Bank of India (SBI) has set out a scheme under which it can extend loans of up to $9 million for every $1 million placed in an FCNR(B) account.
RBI MEASURES
On 5 June, the RBI said it would bear the full foreign exchange hedging cost for authorised banks raising fresh three- to five-year FCNR(B) deposits until 30 September 2026. The support is delivered through a concessional dollar-rupee swap facility conducted at par, meaning both legs of the swap are settled at the same exchange rate. Fresh eligible deposits are also exempt from the cash reserve ratio and statutory liquidity ratio.
The facility formed part of a package of RBI measures to attract foreign inflows and support the rupee, which also set up a similar concessional swap facility for external commercial borrowings by state-owned enterprises; separately, the government removed tax on foreign investors' capital gains and interest income from government securities. SBI'S LEVERAGED OFFER
For FCNR(B) deposits above $1 million, SBI is offering 5.5% on maturities of three years and above but less than four years, 5.75% on maturities of four years to less than five years, and 6% on five-year deposits. The linked loan rate for a five-year maturity is 5.4%. Taking the leverage into account, SBI puts the return on the structure at 14.08%.
The swap facility remains open until 16 October 2026 for deposits mobilised up to 30 September. Other lenders were awaiting further clarification from the RBI before deciding on their own leverage terms.