Yes Bank, the private-sector lender, raised interest rates on foreign currency non-resident (bank) deposits to attract deposits from non-resident Indians, after the Reserve Bank of India said it would bear the full hedging cost on three- to five-year non-resident deposits.
DETAILS OF THE RATE HIKE
The bank offered 7% on three-year FCNR(B) deposits, 7.05% on four-year deposits and 7.10% on five-year deposits, according to a Bloomberg report. The move targeted FCNR(B) accounts, which are fixed-term deposits denominated in foreign currencies and held by non-resident Indians and persons of Indian origin.
The pricing placed longer maturities at incrementally higher yields.
MARKET CONTEXT AND IMPLICATIONS
The move came as HDFC Bank, AU Small Finance Bank and other Indian lenders also raised FCNR(B) rates by up to 350 basis points, after the Reserve Bank of India offered to bear the hedging cost to attract dollar inflows and support the rupee. HDFC Bank raised its rates by 300 basis points to 6% on three- to five-year deposits, while AU Small Finance Bank raised rates by 195 basis points, Reuters reported.
For non-resident depositors, FCNR(B) accounts provide a way to park foreign currency deposits without exposure to rupee exchange risk, as the principal and interest are both payable in designated foreign currencies.
Sources: The Hindu BusinessLine, Reuters