MUMBAI: Some banks raised rates on foreign currency deposits for non-resident Indians by as much as 350 basis points on Wednesday, seeking to attract dollar inflows after the central bank eased regulatory restrictions last week.
The Reserve Bank of India will bear the full hedging cost for three- to five-year non-resident deposits, it said on Friday, as part of a broader set of measures to encourage overseas flows and stem weakness in the rupee.
The unit is Asia's second-worst-performing currency this year, down 6% so far, and had slipped to record lows in May.
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HDFC Bank, India's largest private sector lender, hiked rates by 300 basis points to 6% on three- to five-year deposits.
AU Small Finance Bank increased rates by 195 bps, offering 7.1% on three-year deposits and 7% on five-year deposits.
Yes Bank has set the rate at 7% on three-year deposits, 7.05% on four-year deposits and 7.10% on five-year deposits, according to a Bloomberg report on Wednesday. A Yes Bank spokesperson did not respond to Reuters' request for comment.
Other banks are expected to announce their new rates this week.
Lenders could raise as much as $35 billion to $40 billion via these foreign currency deposits until September this year, according to a Reuters report. The RBI said it is also open to banks providing guarantees to offshore lenders to lend to NRIs, who can place these borrowed funds as deposits.
The RBI had last launched a concessional forex swap facility for non-resident Indians in 2013 when the rupee had depreciated sharply due to the U.S. Federal Reserve's "taper tantrum". Under that scheme, HDFC Bank mobilised $3.4 billion, followed by ICICI Bank, SBI and select foreign banks.
