Indian banks are offering significantly higher interest rates on foreign currency deposits for non-resident Indians (NRIs) after new measures by the Reserve Bank of India (RBI), as lenders compete to attract billions of dollars from overseas investors and support the rupee.
The RBI last week unveiled a package of steps designed to boost foreign exchange inflows, including a concessional swap facility that effectively absorbs the hedging costs on new three- to five-year Foreign Currency Non-Resident (FCNR) deposits until September 30. The central bank also permitted banks to offer leverage against such deposits, making the products more attractive to overseas Indians.
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The policy shift has prompted lenders to raise rates on FCNR deposits, with some banks now offering returns of up to 7% on U.S. dollar deposits, according to local media reports. The higher yields create an opportunity for NRIs to earn returns that in some cases exceed comparable U.S. Treasury yields.
Bank executives estimate the banking sector could attract between $35 billion and $40 billion through the scheme, echoing a similar RBI initiative launched during India’s 2013 currency crisis. State-owned and private lenders are already targeting large Indian diaspora communities in the United States, Canada, the United Kingdom, and the Gulf region.
The move comes as policymakers seek to strengthen India’s foreign exchange position amid pressure on the rupee and concerns over global financial volatility. Earlier reports indicated that banks had urged the RBI to subsidize hedging costs as a way to make foreign currency fundraising more competitive.
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Analysts say the incentives could provide a near-term boost to foreign currency reserves while lowering funding costs for banks. The measures have already contributed to improved market sentiment, with borrowing costs easing and corporate debt issuance accelerating following the RBI’s announcement.
While some bankers believe the scheme may not generate inflows on the scale seen in 2013 because interest rate differentials between India and the United States are narrower today. Industry executives still expect strong participation from NRIs seeking higher yields and currency diversification.
