Indian banks raised interest rates on FCNR(B) deposits, with peak offers reaching about 7 percent, after the Reserve Bank of India opened a special FCNR(B) swap window that covers banks' hedging costs.
RATE MOVES AND MARKET CONTEXT
The increases affected FCNR(B) term deposits, a product that allows non-resident Indians and certain overseas Indians to hold fixed deposits in foreign currencies. Banks lifted rates across various tenors, with the most generous offers reaching around 7 percent, according to Business Standard. The moves followed the Reserve Bank of India's launch of a special FCNR(B) dollar-rupee swap window, which lets banks swap fresh three- to five-year deposits with the central bank, with the RBI bearing the full hedging cost of about 3.5% until 30 September.
FCNR(B) deposits are a key source of foreign currency funding for Indian banks, providing stable offshore liquidity and a channel for non-resident savers to park funds without currency conversion into rupees. Estimates of the inflows the window could attract range from $20 billion to $45 billion, compared with about $34 billion mobilised in 2013.
IMPLICATIONS FOR BANKS AND DEPOSITORS
Some increases were large: Karur Vysya Bank raised its peak rate by more than 300 basis points from 2.63%, and AU Small Finance Bank by 195 basis points from 5.15%.
AU Small Finance Bank said the revision reflected its focus on strengthening its NRI franchise amid rising demand for stable foreign currency deposits.
Peak offers reached about 7 percent, with Karur Vysya Bank at 7 percent and AU Small Finance Bank at 7.1 percent on three- to five-year deposits, while SBI, HDFC Bank and Central Bank of India topped out at 6 percent.