RBI allows banks to offer higher interest on NRI deposits to draw more foreign funds
Mumbai, June 17
The Reserve Bank of India on Wednesday temporarily eased interest rate curbs on certain non-resident deposits to enable banks to offer higher returns on fresh FCNR and NRE deposits with the aim of attracting more overseas funds to prop up the country's foreign exchange reserves and strengthen the rupee.
Under the relaxed rules that have been put in place till September 30, the RBI has withdrawn the interest rate ceiling on fresh Foreign Currency Non-Resident (Bank) deposits with maturities of more than three years and up to five years. It has also removed restrictions on interest rates offered on fresh Non-Resident External (NRE) deposits of three years and above.
However, the RBI said that transfers from Non-Resident Ordinary (NRO) accounts to NRE accounts would not qualify for the exemption.
Before the new rules were rolled out, banks were required to ensure that interest rates on NRE deposits did not exceed those offered on comparable domestic rupee term deposits. FCNR(B) deposits of three to five years were subject to an interest rate ceiling linked to the applicable overnight alternative reference rate or swap rate plus 350 basis points.
The move gives banks more freedom to offer higher interest rates to non-resident Indians, in order to mobilise more foreign-currency and rupee deposits from overseas investors and savers.
The measure also comes close on the heels of a series of steps that have been taken with a view to attracting foreign currency amid soaring oil prices in the global market and the exit of foreign funds from the Indian stock markets, which had led to a drawing down of the country's foreign exchange reserves and weakened the rupee.
Earlier this month, the RBI allowed all foreign individual investors to directly purchase shares in listed Indian companies, expanding access beyond non-resident Indians and overseas citizens of India. The move followed changes to foreign exchange rules that offered more investment opportunities to NRIs.
The central bank also introduced a special swap facility that absorbs much of the hedging costs usually borne by banks. As a result, several private and public banks have passed on this benefit to customers, significantly hiking their dollar-denominated FCNR deposit rates (with some lenders offering between 6 per cent and 7.10 per cent on eligible tenor.
— IANS
Reader Comments
Good for the economy but I worry about banks passing on costs to regular depositors. Rates have been pitiful on domestic savings accounts. Hope RBI is watching that too.
As an NRI in the US, I'm tempted by 7% rates on FCNR deposits. But currency risk remains—rupee has been volatile. Still, it's a good short-term play if you trust RBI's management. Well played, RBI! 👏
Smart move by RBI to shore up reserves. But are NRIs that comfortable locking money for 3-5 years given global uncertainty? Time will tell if this eases rupee pressure.
Great for NRIs but what about us domestic savers? Our fixed deposit rates are still low. RBI seems to be prioritising foreign funds over local depositors. Needs balance. 😒
Exchange rate stability is crucial. With oil prices high and FIIs pulling out, this makes sense. Also, the swap facility reducing hedging costs is a masterstroke. Let's see if it attracts the big NRIs. 💰
My parents are NRIs in Dubai—they're considering it. But tax implications need clarity. Also, why exclude NRO to
We welcome thoughtful discussions from our readers. Please keep comments respectful and on-topic.