Governor Sanjay Malhotra expects banks to pass on the benefit to overseas depositors by way of higher interest rates. Senior bank executives said the central bank’s move may allow them to offer higher rates by up to 50-100 basis points.
“This decision creates clear headroom for banks to offer more competitive rates to NRI depositors during this window, and we expect the segment to see renewed momentum,” Indian Overseas Bank managing director Ajay Kumar Srivastava told ET.
The move comes at a time when banks are facing difficulties in overall deposit mobilisation with savers shifting preference to market-linked instruments and inflows into foreign currency non-resident (bank) or FCNR (B) deposits plunged 87% in FY26 to $946 million from $7.076 billion in the preceding fiscal.
PRAVASI DEPOSITS Central bank to bear full hedging costs of funds mobilised until Sept 30 over medium-to-long term, enabling banks to offer higher rates by up to 50-100 bps
This may also boost dollar inflows through direct banking channels, senior bank executives said.
“We are hopeful of reasonable inflows, but we are not targeting any particular amount,” RBI Governor Sanjay Malhotra said.
The central bank has decided to offer banks a concessional swap facility covering the full hedging cost on fresh FCNR(B) deposit mobilisation with a three-to-five-year tenure. The facility will remain valid till September 30.
“It is a well-timed measure that materially lowers the effective cost of mobilising foreign currency funds,” IOB’s Srivastava said.
Banks raise FCNR (B) deposits and convert the proceeds to local currency to lend within the country. For this, banks need to swap those funds.
The FCNR (B) deposit allows the Indian diaspora to park their overseas earnings in major foreign currencies in India without converting them into rupees. Such deposits can be placed in major foreign currencies like the dollar, euro, or pound sterling while protecting wealth against currency fluctuations.