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Informist, Wednesday, Jun. 17, 2026

 

MUMBAI – In the last two weeks, most domestic banks have raised interest rates on foreign currency non-resident dollar-denominated bank deposits. However, many of them have yet to finalise their internal operating procedures for leveraging these deposits, as they await clarity from the Reserve Bank of India, bankers said.

 

RBI Governor Sanjay Malhotra earlier this month announced a swap facility to cover the full hedging costs for banks raising fresh three- to five-year FCNR(B) deposits till Sept. 30. The swap facility that came into effect on Jun. 8 will remain open till Oct. 16 for deposits mobilised between Jun. 8 and Sept. 30.

 

The RBI's detailed notification on the scheme, issued on Jun. 8, showed that the central bank has enabled banks to offer leverage to clients for such deposits. However, lenders await details on whether they are allowed to leverage FCNR(B) deposits through their own overseas branches or through their Gujarat International Finance Tec-City units and other such nuances, they said. 

 

Banks expect the RBI to provide clarity on this by publishing Frequently Asked Questions on the facility this week. Leverage makes it easier for overseas banks to extend credit to Non-Resident Indians who place borrowed funds as FCNR deposits. State Bank of India is offering a loan rate of 5.40% on a five-year dollar deposit, which delivers an interest of 6.00% under its SBI Advantage FCNR(B) Deposit scheme, leveraging up to nine times the base amount.

 

"We are expecting maybe in a week or three to four days, banks will finalise their standard operating process flow for leveraging for FCNR(B)," a senior official from a private-sector bank said. "Banks have sought certain clarifications from RBI, which are expected in the form of an FAQ." The RBI has informed banks that it will publish a Frequently Asked Questions on these queries, bankers said. 

 

As per the notification on the swap facility for FCNR (B) deposits, such deposits are exempt from the regulation that bars banks from issuing guarantees, letters of credit, and other non-fund-based credit facilities to any entity to assure repayment of funds through these deposits.

 

Among nationalised, private sector, and small finance banks in India, 31 have raised rates on three- to five-year dollar deposits this month by up to 487 basis points, as per data compiled by Informist. DCB Bank, Equitas Small Finance Bank and Ujjivan Small Finance Bank currently offer the highest rate of 7.13%, which is about the regulatory ceiling based on the prevailing Secured Overnight Funding Rate for dollars.

 

Three state-owned banks have yet to raise rates or announce special schemes: Bank of India, Punjab & Sind Bank, and Union Bank of India. "We are still waiting for the latest circular, and our bank has still not launched the new rates," an official from the NRI helpdesk of a state-owned bank said, adding that the rates should be raised within two to three days.

 

Several NRI clients have approached banks enquiring about the FCNR(B) schemes and the leveraging facility on these, bankers said. Bankers estimate a leverage opportunity of 9 to 20 times the base deposit size. Investment bank Jefferies estimates that with a leverage of 10 times on such a deposit, customers can generate an 18% rate of return over three to five years. Banks have approached their existing non-resident customers to mobilise such deposits, though inflows so far have not been substantial since it's in the early stages, they said. 

 

"It's already been a few days, FAQs have to come fast. Depositors also want a clear understanding of the rates and the leveraging. The scheme announcements and leveraging details have to settle down, and then NRIs will compare the rates," another senior banker at a state-owned bank said. 

 

In 2013, the RBI had announced an FCNR deposit window to attract inflows, which mobilised about $26 billion. According to market participants, the 2013 scheme's success relied heavily on NRIs' ability to leverage their capital by 10–20 times through standby letters of credit issued by Indian banks. An Informist Poll estimated that the 2026 window will bring in about $43 billion.  End

 

US$1 = INR 94.5250

IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT

 

Reported by Cassandra Carvalho

With inputs by Pratiksha

 

Edited by Saji George Titus

 

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