RBI clarifies FCNR-B rules, fresh NRI inflows may support Rupee
Mumbai, June 23
The Reserve Bank of India on Tuesday issued clarifications on the operational aspects of Foreign Currency Non-Resident Bank deposits, addressing queries raised by banks regarding the mobilisation of such deposits and related lending activities.
The clarification is expected to encourage greater inflows through the FCNR-B route, which could provide support to the rupee in the near term.
According to a document released by the central bank, all Indian banks, including their overseas branches, are permitted to extend loans to non-residents or issue standby letters of credit (SBLCs) in favour of overseas lenders against FCNR-B deposits mobilised by them.
The RBI clarified that banks can also extend loans to FCNR-B account holders and are allowed to mark a lien on such deposits. The move provides greater operational flexibility to banks in raising foreign currency deposits from non-resident Indians.
The central bank further stated that banks will be eligible to undertake foreign exchange swaps with tenors of less than three years, provided they have mobilised fresh eligible FCNR-B deposits with a minimum original maturity of three years under the special scheme.
Under the arrangement, the RBI will offer a plain buy-sell foreign exchange swap facility to banks. The swap support will cover only the principal amount of the deposits and will not include the interest component.
Following the RBI's announcement of hedging support for fresh three-year and five-year FCNR-B deposits, several public and private sector lenders have increased their deposit rates to attract overseas funds. Banks such as Yes Bank, Canara Bank, South Indian Bank and AU Small Finance Bank have raised FCNR-B deposit rates to as high as 7.1 per cent.
Market participants believe that the higher deposit rates, coupled with the RBI's swap support and operational clarifications, could encourage non-resident inflows in the coming weeks.
The Indian rupee closed at 94.73 against the US dollar on June 23, compared with 94.69 in the previous trading session. Analysts expect the domestic currency to witness some appreciation in the near term as fresh FCNR-B inflows begin to enter the banking system.
— IANS
Reader Comments
Finally, some clarity from RBI! NRIs like my uncle were confused about the rules. But I hope these inflows don't make rupee artificially strong - our exporters will suffer. Need balanced approach. Also, banks should pass on benefits to depositors, not just use for speculation.
As an NRI in Dubai, I'm watching this closely. Yes Bank offering 7.1% on FCNR-B is tempting - that's way better than savings rates here. But the 3-year lock-in period is a concern. RBI should also look at reducing TDS on NRI deposits to attract more inflows. Rupee at 94.73 seems fair, but with more inflows could strengthen a bit.
Classic RBI short-term fix. Instead of focusing on exports and manufacturing, they keep relying on NRI money to support rupee. These FCNR-B inflows can reverse quickly if global sentiment changes. Need structural reforms in trade deficit. But yes, for NRIs, this is a good opportunity if you trust Indian banks. 😅
My father is an NRI in Canada and he's thrilled about these higher rates. He was getting 2% there, now considering moving funds to India. But I worry about currency risk - if rupee depreciates during the 3-year term, the gains might vanish. RBI's swap support helps but only for principal. Still, for patriotic NRIs who believe in India's growth story, this is promising.
Interesting move from RBI. As an American who works with Indian banks, these clarifications will definitely simplify compliance for foreign investors. The swap facility for
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