RBI updates FCNR(B) rules to let banks use overseas funds
The RBI just made it easier for NRIs to park their money in India by updating its FCNR(B) deposit rules.
Now, Indian banks can tap funds from their overseas branches to lend to NRIs wanting to make deposits back home.
The goal? Bring in more foreign money and keep currency risks in check.
Standby letters and forex hedge
Banks can now issue standby letters of credit, making loans backed by FCNR(B) deposits safer and less likely to default.
Plus, RBI is offering currency risk coverage for new three- to five-year FCNR(B) deposits, letting banks give fixed interest rates between 6% and 7%.
International investors could earn higher returns if they borrow at floating rates (around 5% to 5.5%), but the free forex hedge only covers the principal, and the swap is applied to deposits booked under the scheme with a residual maturity of less than three years.
Existing foreign currency accounts aren't affected, so if you already have one, nothing changes for you.