Indian banks are now offering up to 14% annualised returns on FCNR(B) deposits, combining fixed dollar deposits with access to loans against those deposits to amplify potential gains. As reported by The Hindu BusinessLine, a large bank has circulated a message to its NRI clients offering a scheme that requires a minimum investment of $1 million, locked for three-five years. Base deposit rates range between 5.50% and 6.00%, but the real draw lies in the bank's leverage option, allowing investors to borrow up to nine times their deposit. The bank's overseas branches and subsidiaries can provide loans of $9 million on a fresh deposit of $1 million, with proceeds placed as fresh FCNR(B) deposits at higher interest rates. This creates a $10 million FCNR(B) deposit on which the bank earns interest on both the loan and rupee loans extended in India, as noted by a senior official with a private sector bank.
Yes Bank has announced the highest FCNR(B) rates among major lenders, offering up to 6.60% annually on US dollar deposits under the revised structure effective Thursday. The bank's rates are structured as follows: deposits with tenures of 3-4 years earn 6.50%, 4-5 years earn 6.55%, while 5-year deposits fetch 6.60%. This represents a significant increase from earlier levels of around 3.35% on long-term US dollar deposits, as reported by The Economic Times. The move is described as a well-calibrated and multi-pronged measure aimed at attracting FCNR(B) deposits and strengthening the Indian rupee.
The upward revision in interest rates comes after the Reserve Bank of India announced on June 5 that it will bear the full hedging cost on fresh 3/5-year FCNR(B) deposits that banks mobilise up to September 30. As reported by The Hindu BusinessLine, such deposits have been exempted from statutory pre-emptions such as the cash reserve ratio and the statutory liquidity ratio, enabling banks to deploy the entire proceeds as loans. This regulatory support has enabled banks to offer significantly higher rates than the earlier 3% levels. The RBI's measures are part of its efforts to attract dollars to stabilise the rupee, with the central bank bearing the full hedging cost to encourage NRI participation.
Indian banks with strong overseas presence such as State Bank of India, Bank of Baroda, Bank of India, ICICI Bank, Axis Bank and HDFC Bank are better positioned to attract Foreign Currency Non-Resident deposits. SBI has the largest overseas presence with 245 offices (including branches and offices of subsidiaries) spread across 29 countries. SBI economists expect the banking system to mop up $40-45 billion through the FCNR(B) deposit route. Bank credit in India grew 16.2% in the year through May 15, the fastest pace since June 2024, while deposits increased 12.2% over the same period, creating intense competition for household savings.
SMBC, part of Japan's second-largest banking group, became the top shareholder of Yes Bank with a 24.9% stake last year, marking the biggest foreign investment in India's growing banking sector. Tonse, who took over as CEO in April, said Yes Bank had signed agreements with SMBC to cross refer clients for retail offerings and deposits. The bank plans to expand across the retail lending spectrum, including home and auto loans, after previously avoiding lower-yielding products, with loans growing 11.1% in the March quarter from a year earlier. Karthik Srinivasan from ICRA noted that larger banks with overseas branches have an advantage in servicing NRI clients, with some banks setting up offices in GIFT City to facilitate this growth.
