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Banks have started raising interest rates on foreign currency deposits following the Central Bank’s decision to ease norms to support currency inflows. SBI, ICICI Bank, HDFC Bank and IDFC First Bank have raised interest rates on non-resident foreign currency deposits (FCNR).
Last week, the RBI temporarily allowed banks to raise fresh FCNR(B) and NRE deposits from non-resident Indians (NRIs) without reference to the current interest rate regulations, effective July 7, 2022. This relief will be available for the period up to 31 October 2022
SBI revised USD FCNR rates in the range of 2.85-3.25 percent per annum for various USD term deposits with effect from July 10, 2022. It raised the interest rate on one-year USD term deposits to 2, 85 from 1.80 per cent earlier. For deposits of 3-4 years and 5 years, it has been raised to 3.10 percent and 3.25 percent, respectively. The previous rates were 2.30 percent and 2.45 percent.
ICICI Bank has revised up the FCNR by 0.15 percent for deposits greater than and equal to USD 350,000 for a tenure of 12-24 months to 3.50 percent. The new rate is effective from July 13, 2022.
HDFC Bank has revised the FCNR on USD deposits for tenors of 1 year to less than 2 years to 3.35 percent with effect from July 9, 2022.
Equitas Small Finance Bank has also announced a revision in interest rates on fixed and recurring foreign external account (NRE) deposits with effect from July 13, 2022. It has increased the NRE rate to 7.40 percent for NRE FDs for 888 days and up to 7.30 percent for NRE RD for 36 months.
IDFC First Bank has revised interest rates on FCNR deposits above $1 million effective July 13, 2022. For USD deposits, the lender offers an interest rate of 3.50 percent for deposits ranging from 1 year to less than 5 years. For 5-year deposits in US dollars, it offers an interest rate of 2.50 percent.
Apart from easing FCNR deposit norms, the RBI raised foreign borrowing limits for companies and liberalized foreign investment norms in government bonds to boost foreign exchange inflows.
Total NRI deposits declined to $139.02 billion in FY22 from $141.89 billion in the previous year. NRE deposits accounted for a large chunk of NRI deposits at $100.80 billion outstanding, down from $102.57 billion a year ago, amid expectations of rate hikes from global central banks. Banks’ FCNR(B) deposits were $16.91 billion as of March 2022.
Banks will be able to offer higher returns to NRIs on their deposits after the RBI easing. “Removal of CRR, SLR norms and interest rate cap on incremental deposits of NRIs in FCNR-B and NRE term deposits will help reduce cost of funds and enable banks to offer higher returns to customers,” said bank employee.
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