What changed
RBI revised the maximum interest rates on FCNR(B) deposits upward. For maturities of 1 year to less than 3 years, the ceiling increased from LIBOR/Swap plus 125 bps to plus 200 bps. For 3-5 year tenors, the ceiling rose from plus 125 bps to plus 300 bps. Floating rate deposits must reset every six months within these new caps.
What it means for you
Banks can now offer higher rates on FCNR(B) deposits, making them more attractive to NRIs and potentially boosting foreign currency inflows. This may increase banks' cost of funds for these deposits but also provides more flexibility to compete for non-resident deposits. The higher spreads could help banks manage their foreign currency liquidity needs.
What you must do
- Update FCNR(B) deposit interest rate slabs to reflect new ceilings: 200 bps over LIBOR/Swap for 1-3 years and 300 bps for 3-5 years.
- Ensure floating rate FCNR(B) deposits have a six-month interest reset period as mandated.
- Review foreign currency lending from FCNR(B) funds, especially for PCFC/EBR and export capability loans, to align with revised deposit costs.
- Communicate revised rates to branches and NRI customers to attract fresh deposits.
Who it affects
All Scheduled Commercial Banks (excluding RRBs) offering FCNR(B) accounts, NRI depositors holding or considering FCNR(B) deposits, Banks' treasury and foreign currency liability management teams, Exporters and entities availing foreign currency loans from FCNR(B) funds
What are the new interest rate ceilings for FCNR(B) deposits?
For deposits with maturity of 1 year to less than 3 years, the ceiling is LIBOR/Swap plus 200 basis points. For 3 to 5 years, it is LIBOR/Swap plus 300 basis points. Floating rate deposits must stay within these caps and reset every six months.
Can banks lend foreign currency from FCNR(B) deposits?
Yes, banks may extend foreign currency loans from FCNR(B) deposits as Pre-shipment Credit in Foreign Currency (PCFC) or Rediscounting of Export Bills Abroad (EBR) to exporters and other entities with natural hedge or a risk management policy for exchange risk.
When did these revised rates take effect?
The changes became effective from the close of business in India on May 4, 2012, and remain until further notice.