With the Reserve Bank of India (RBI) shutting the concessional swap window on FCNR(B) deposits, banks have cut down the interest rates on them after carrying out aggressive mobilisation drives during the period the special scheme was running.

State Bank of India, HDFC Bank and ICICI Bank, among others, have sharply reduced interest rates on long-tenure foreign currency non-resident (Bank), or FCNR(B), deposits.

HDFC Bank, the country’s largest private sector lender, has cut its five-year dollar FCNR(B) rate by 310 basis points to 3.15% from 6.25%, effective 1 September.

ICICI Bank has brought the 5-year rate even lower, pegging it at 2.90% from 6%. The drop in rate, however, is 310 basis points, similar to what HDFC Bank has done.

SBI’s regular 5-year FCNR(B) rate is now 3.05%, lower by 270 basis points from the 5.75% it offered for deposits up to $1 million under its Advantage FCNR(B) scheme. For deposits above $1 million, the cut is sharper with a lowering of 295 basis points from the current interest rate. The state-run lender was offering an interest rate of 6% on such high-value deposits. 

The lowering of interest rates on long-tenure FCNR(B) deposits was expected as the RBI was offering the swap facility on fresh deposits with three- to five-year maturities. 

During the swap window, banks found an opportunity to aggressively mop up FCNR(B) deposits by upping interest rates and offering leverage schemes to non-resident Indians (NRIs), under which customers would get loans multiple their original amount and this would then be parked as deposits. Lenders would add the FCNR(B) deposits to their rupee liquidity after swapping it with the RBI. 

Until 21 August, banks had mopped up $65.40 billion via FCNR(B) deposits under the RBI’s special swap window. The total mobilisation under the RBI’s three concessional swap facilities stood at $72.85 billion. This included $4.86 billion raised through overseas foreign currency borrowings (OFCBs) and $2.59 billion via external commercial borrowings (ECBs).  

The RBI had opened the special swap window on fresh FCNR(B) deposits since 8 June but shut it a month in advance from the announced due date, after the inflows came in floods. The central bank on 5 June announced the swap scheme would be available on FCNR(B) deposits until 30 September, but then decided to advance the cut-off date to 31 August.

The swap window for OFCBs and ECBs will run their course until 31 December 2026.