Banks likely to go all out to attract diaspora investment

KOLKATA: Banks are likely to offer about 200 basis points higher interest rates on foreign currency non-resident-bank (FCNR-B) deposits to attract inflows from the Indian diaspora after Reserve Bank of India's (RBI) assurance it would bear the entire hedging costs. Some believe the rates offered would match those given to domestic savers.

Dollar denominated FCNR-B deposits are pegged at 2.90-3.55% for three-to-five-year against around 6% on rupee deposits for the comparable period.

RBI's decision to bear the hedging cost on FCNR-B deposits and exempt banks from maintaining the cash reserve ratio and statutory liquidity ratio against those deposits would save around 300 basis points of operational cost for banks, senior bankers said.


"I have told our team to raise FCNR-B rates by 150 basis points to start with. We can increase rates up to 200 basis points ," Canara Bank managing director Brajesh Kumar Singh told ET.

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CSB Bank managing director Pralay Mondal said that FCNR-B rates could even match interest rates offered on domestic deposits.

"We are waiting for the finer clarifications, but as we understand it now, FCNR-B interest rate for this tenor where hedging cost will get absorbed, should go up temporarily. I think it will come close to the domestic rates," Mondal said.

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The central bank has decided to offer banks a concessional swap facility covering the full hedging cost on fresh FCNR(B) deposit mobilisation with three to five years tenure. The facility will remain valid until September 30. The move is aimed at boosting foreign currency inflows.

To recall, inflows into FCNR-B plunged 87% in FY26 to $946 million from $7.076 billion in the preceding fiscal. Following the RBI move, banks expect to garner a sizable chunk of surplus funds from overseas Indians. They can even save some cost after passing on the benefit to their overseas clientele. South-based banks which traditionally have larger shares of non-resident customers are set to gain more, Canara Bank's Singh said.