RBI removes interest rate cap on new FCNR(B) deposits
What's the story
The Reserve Bank of India (RBI) has removed the interest rate ceiling on new three- and five-year Foreign Currency Non-Resident Bank (FCNR-B) deposits. The move is part of a review of its deposit interest rate directives from 2025. The central bank said the change will be effective until September 30, 2026, as part of its efforts to attract more foreign capital inflows into the country.
Deposit flexibility
Interest rate cap lifted for NRE deposits as well
Along with the fresh three- and five-year FCNR-B deposits, the RBI has also lifted the interest rate cap on Non-Resident External (NRE) deposits for a tenor of three years and above. This includes those renewed at maturity. The central bank hopes these changes will encourage banks to offer more competitive rates, thereby attracting more foreign capital inflows into India.
Rate regulations
Guidelines issued for NRE and NRO deposits
The RBI has issued guidelines for interest rates on NRE and Non-Resident Ordinary (NRO) deposits. The rates can't be higher than those offered by banks on similar domestic rupee term deposits. For one-year to less than three-year deposits, the ceiling rate will be 250 basis points (bps) above the overnight alternative reference rate. For three to five-year deposits, it can go up to 350bps above this reference rate.
Strategic initiatives
RBI's measures expected to boost capital inflows
The RBI's latest move comes after it announced a series of measures to boost capital inflows into the country. These include hedging support for new three- and five-year deposits and a concessional swap window for external commercial borrowings (ECBs) by public sector units. The central bank estimates these measures could bring in up to $50 billion worth of inflows in the coming months, bolstering India's capital account.