SBI, ICICI Bank and HDFC Bank raised rates on FCNR(B) foreign currency deposits after the Reserve Bank of India announced a foreign currency swap window that reduced banks' currency hedging costs and enabled them to offer higher returns to non resident Indians.
RATIONALE AND RBI ACTION
The rate increases came within days of the RBI announcing a foreign currency swap window for banks until 30 September, effectively absorbing the currency hedging cost that banks had to bear on such deposits and leaving room for them to raise rates. FCNR(B) accounts are used by non-resident Indians to hold term deposits in foreign currencies.
HDFC Bank raised its FCNR(B) rate for three- to five-year deposits to 6 percent effective 10 June, for deposits booked until 30 September 2026. State Bank of India launched an SBI Advantage FCNR(B) deposit scheme in US dollars for three to five years with a one-year lock-in, paying 5.5 percent on deposits above $1 million for three to four years, 5.75 percent for four to five years and 6 percent for five years. ICICI Bank said on its website it was offering 6.50 percent on NRI fixed deposits effective 11 June.
Bank of Baroda, Kotak Mahindra Bank and AU Small Finance Bank also raised FCNR(B) rates; AU Small Finance Bank lifted its peak US dollar deposit rate to 7.10 percent from 5.15 percent effective 10 June.
MARKET IMPLICATIONS AND CONTEXT
Experts believe about $60–70 billion of foreign capital could flow in under the deposit scheme, according to PTI.
Jefferies said large banks with strong NRI franchises, such as HDFC Bank, ICICI Bank and SBI, were best placed to benefit, noting that a similar FCNR(B) swap window in 2013 helped India attract $34 billion in foreign currency inflows.
The RBI's swap facility, under which the central bank bears the hedging cost on fresh three- to five-year FCNR(B) deposits mobilised until 30 September 2026, was part of a 5 June package aimed at attracting foreign capital inflows.
Sources: The Hindu Business Line Banking