Mumbai: Competition among banks to attract foreign currency deposits from Non-Resident Indians (NRIs) has intensified after the Reserve Bank of India (RBI) announced a special dispensation aimed at boosting US dollar inflows, prompting several lenders to sharply raise interest rates on Foreign Currency Non-Resident (Bank) [FCNR(B)] deposits. The RBI's recent measures include exemption from CRR and SLR requirements on incremental FCNR(B) deposits mobilised under the scheme and a facility under which the central bank will bear the hedging cost on eligible deposits, making it more attractive for banks to garner overseas funds.
According to interest rates published on the websites of various banks, smaller and mid-sized lenders have led the rate hikes, with some offering more than 7 per cent on US dollar FCNR(B) deposits with tenures of three to five years.
Among the highest rates on offer, UCO Bank is providing 7.20 per cent on five-year FCNR(B) deposits and 6.66 per cent on three-year deposits. DCB Bank is offering 7.13 per cent for both three-year and five-year tenures, while CSB Bank is offering 6.95 per cent for three years and 7.05 per cent for five years.
Bandhan Bank has announced a flat 7 per cent rate for both three-year and five-year deposits, while Karnataka Bank is offering 6.50 per cent for three years and 7 per cent for five years.
Among large private sector lenders, ICICI Bank, Axis Bank and Federal Bank are offering 6 per cent on both three-year and five-year FCNR(B) deposits. Kotak Mahindra Bank is offering between 6 per cent and 6.15 per cent, depending on deposit size and tenure.
Public sector lender Punjab National Bank (PNB) is offering 6.00 per cent on three-year FCNR(B) deposits and 6.10 per cent on five-year deposits, according to rates announced by the bank.
Banks' higher FCNR(B) rates indicate that lenders are using the RBI's liberalised framework to aggressively compete for NRI dollar deposits.
Other lenders have also revised rates upward. IDBI Bank is offering 6.00-6.10 per cent for three-year deposits and 6.10-6.20 per cent for five-year deposits. YES Bank is offering 6.50 per cent and 6.60 per cent respectively, while Canara Bank is providing 6.50 per cent for both tenures. Indian Bank is offering between 5.50 per cent and 6 per cent for three years and between 6 per cent and 6.50 per cent for five years.
Banking industry participants expect the measures to generate substantial foreign currency inflows. Many reports note that the RBI's relaxation could attract between USD 35 billion and USD 40 billion, while brokerage firm Jefferies has estimated potential inflows of USD 50-70 billion.
