RBI ends dollar deposit scheme August 31, funding costs rise
The Reserve Bank of India (RBI) has announced that it would close its special dollar deposit scheme for overseas residents on August 31, which had brought in over $50 billion since June by making foreign currency deposits cheaper for banks.
With the scheme gone as of August 31, banks now have to borrow money through pricier options like certificates of deposit (CDs), making it more expensive for them to fund loans.
Three-month CD rates at 6.59%
The scheme's closure, announced for August 31, three-month CD rates spiked to 6.59%, the most since July 14.
Six-month CDs also were headed for their steepest weekly gain since July 10.
Since loan demand is outpacing regular deposits, banks may need to issue more CDs at these higher rates.
Anshul Chandak, head of treasury at Emirates NBD-backed RBL Bank Ltd. said money-market rates will rise another 5 basis points before stabilizing.