Some banks have again raised interest rates on foreign currency non-resident (bank) [FCNR(B)] deposits to as high as 7.13%, after the Reserve Bank of India (RBI) temporarily removed the interest-rate ceiling on select such deposits giving lenders greater flexibility to attract overseas funds.
Punjab National Bank has increased the interest rate on FCNR(B) deposits of $1 million and above to 6.60% for tenures of three to five years. For deposits of less than $1 million, the public sector bank is now offering 6.50% per annum. Earlier the bank was offering rates in the range of 6-6.10%.
Institutional Revisions
South Indian Bank has also revised its rates, offering 6.50% on FCNR(B) deposits with maturities of three to five years. Bandhan Bank has introduced a separate rate slab for deposits of $1 million and above, offering 7.10% for tenures of three to five years, while deposits of up to $1 million will continue to earn 7%. Equitas Small Finance Bank has created a new five-year maturity bucket offering 7.13% per annum.
As competition grows among banks to attract foreign deposits, other banks are likely to enhance their interest rates too.
Deregulation Catalyst
Ujjivan Small Finance Bank is preparing to revise its rates upwards from the current 7.13%. “Now that the cap has gone, we are internally deliberating on the extent of the increase. We are yet to finalise it, but we will revise the rate upwards,” said Hitendra Jha, head of retail liabilities, TASC & TPP at Ujjivan Small Finance Bank.
Jha said the bank’s previous FCNR(B) rate hike had generated a strong response, mobilising around Rs 100 crore in deposits within a month. “We are seeing traction and are very confident that we can mobilise at least three to four times what we did last time,” he said.
On Wednesday, the RBI temporarily withdrew the interest rate ceiling on fresh three-year and five-year FCNR(B) deposits until September 30, 2026, as part of changes announced under its revised deposit interest rate framework.