RBI Raises Interest Rates for NRI Foreign Currency Deposits
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Mumbai, Dec 6 (NationPress) The Reserve Bank of India (RBI) announced on Friday a hike in the interest rate limits for Foreign Currency Non-Resident Bank deposits, commonly known as FCNR (B) deposits, which is set to help Non-Resident Indians (NRIs) earn higher returns on their savings.
This decision is strategically aimed at drawing in more foreign investments at a time when the Indian rupee is facing challenges due to increased capital outflows by foreign investors from the Indian stock markets.
FCNR(B) deposits allow NRIs to maintain their earnings in foreign currencies, such as USD or GBP, safeguarding them against fluctuations in exchange rates.
According to an RBI statement, "To incentivize greater capital inflows, the RBI has opted to raise the interest rate ceilings on FCNR (B) deposits. Effective today (December 6, 2024), banks can now attract new FCNR(B) deposits with a maturity period of 1 year to less than 3 years at rates not exceeding ARR plus 400 basis points, and for deposits maturing between 3 to 5 years at rates not exceeding ARR plus 500 basis points. This adjustment will remain in effect until March 31, 2025."
Previously, the interest rates on FCNR(B) deposits were capped at the Overnight Alternative Reference Rate (ARR) for the respective currency/swap, with an additional 250 basis points for deposits of 1 year to less than 3 years and 350 basis points for deposits from 3 years up to 5 years, as per the RBI statement.
Banks are now authorized to offer enhanced interest rates across various tenors.
The RBI has also initiated steps towards implementing the Secured Overnight Rupee Rate (SORR), a benchmark derived from the secured money markets.
Financial Benchmarks India Ltd (FBIL) is being consulted to advance this proposal.
This initiative aligns with the recommendations from the RBI’s Committee on the MIBOR Benchmark.
The Reserve Bank established the Committee, chaired by Ramanathan Subramanian, to assess the rupee interest rate benchmarks in India, particularly focusing on the Mumbai Interbank Outright Rate (MIBOR), and to explore the necessity for transitioning to new benchmarks. The Committee suggested several significant measures aimed at enhancing the interest rate derivative market and bolstering the reliability of interest rate benchmarks. The Committee’s Report has been shared on the RBI’s website for public feedback. The Reserve Bank is currently reviewing the Committee's recommendations along with the received comments.
"Other recommendations of the Committee are under evaluation," the RBI statement concluded.
