HDFC Bank and ICICI Bank cut five-year US dollar FCNR(B) rates by 310 basis points, while SBI also reduced its long-term rates.
The special facility helped banks lower their funding costs and attract a surge of foreign-currency deposits before closing on August 31.
Indian banks collectively raised $65.4 billion through FCNR(B) deposits by August 21, prompting the RBI to advance the facility’s closure.
FCNR Rates Crash After RBI Window Closes: Banks Slash Dollar Deposit Returns
Indian banks have sharply cut FCNR(B) dollar deposit rates after the RBI’s special swap window closed, ending a 10-week period of unusually high returns for overseas depositors
Summary
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Indian banks have sharply cut interest rates on long-tenure foreign-currency non-resident (FCNR-B) deposits after the Reserve Bank of India’s special FCNR(B) swap window closed on Monday, ending a 10-week push to attract overseas funds.
HDFC Bank has reduced the interest rate on five-year US dollar FCNR(B) deposits to 3.15% from 6.25%, a cut of 310 basis points, effective September 1. ICICI Bank has made a similar reduction, lowering its five-year dollar deposit rate to 2.90% from 6%.
Both lenders had raised rates sharply on three-to-five-year FCNR(B) deposits after the RBI introduced the special facility in June.
SBI has also reset its rates. Its regular five-year FCNR(B) rate now stands at 3.05%, compared with 5.75% offered for deposits of up to $1 million under its Advantage FCNR(B) scheme. For deposits above $1 million, SBI had offered a rate of 6%.
Banks Roll Back Premium After RBI Facility Ends
The steep rate reductions indicate that banks are withdrawing the premium they had been willing to pay for longer-duration dollar deposits once the economics supported by the RBI swap facility disappeared.
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The RBI introduced the special dollar-rupee swap facility in June, reducing banks’ effective cost of raising foreign-currency deposits and allowing them to offer significantly higher returns to non-resident depositors.
The move triggered a strong response from overseas depositors. Indian banks collectively mobilised $65.4 billion through FCNR(B) deposits by August 21, while total foreign-currency inflows through RBI-supported facilities, including overseas borrowings, reached $73 billion.
RBI Advances Closure Of FCNR(B) Window
The strong mobilisation led the RBI to bring forward the closure of the special FCNR(B) window to August 31, from the earlier September 30 deadline.
The subsequent rate reset has been particularly sharp for three-to-five-year deposits, while shorter-tenure rates have remained broadly stable. This suggests banks are no longer prepared to pay unusually high premiums for long-term dollar deposits without the benefit of the RBI-backed swap facility.