Banks Lift FCNR(B) Deposit Rates After RBI's Dollar‑Rupee Swap Facility

Major domestic lenders in India have begun increasing interest rates on Foreign Currency Non‑Resident (Bank) [FCNR(B)] deposits following an RBI move to operationalise a US dollar‑rupee forex swap facility for fresh FCNR(B) deposits with maturities of three to five years.

According to a report by Business Standard, HDFC Bank raised its FCNR(B) deposit rates on Wednesday by up to 260 basis points. The bank is now offering interest rates of up to 6% on deposits in the three‑ to five‑year maturity bracket. HDFC Bank is India’s largest private sector bank and a key participant in a similar scheme implemented in 2013.

Other private lenders, including Yes Bank and AU Small Finance Bank, have also increased their FCNR(B) rates, with some offering as high as 7.10% on deposits in the three‑ to five‑year tenor segment.

The RBI’s new swap facility is part of broader measures to attract foreign capital into the banking system. Under the arrangement, authorised dealer banks that mobilise fresh FCNR(B) deposits with three‑ to five‑year maturities will be eligible for a forex swap with the central bank, under which the RBI will absorb the full cost of hedging until September 30.

With the central bank shouldering the hedging cost, banks can offer deposit rates at least 200 basis points higher than prevailing levels, making FCNR(B) instruments more attractive to non‑resident Indians (NRIs).

Estimates of potential FCNR(B) inflows vary widely. Barclays has projected a base‑case inflow of $25 billion‑$30 billion over the coming months, somewhat lower than the roughly $34 billion mobilised under the 2013 scheme due to tighter global liquidity.

MUFG Bank forecasts around $20 billion, while SBI Research expects inflows in the range of $40 billion‑$45 billion through the FCNR(B) route.

Under the RBI guidelines, banks are free to price eligible FCNR(B) deposits according to internal policy within existing regulatory ceilings.

The concessional swap facility will be available to authorised dealer category‑I banks for eligible deposits mobilised in any freely convertible currency, with swaps undertaken in US dollars.

For FCNR(B) deposits denominated in other foreign currencies, banks may convert the amount into its US dollar equivalent at prevailing market rates on the swap date, provided they follow consistent internal policies, maintain proper documentation and preserve audit trails.

Additionally, underlying FCNR(B) deposits will carry a mandatory one‑year lock‑in period, ensuring stability in the funds raised under this facility.