RBI Increases FCNRB Deposit Rate Ceilings To Attract More Capital Inflows

In order to attract more capital inflows, the Reserve Bank of India has decided to increase interest rate ceilings on foreign currency non-resident bank deposits with immediate effect, Governor Shaktikanta Das said during monetary policy announcement.

Banks are permitted to raise FCNRB deposits of one year to less than three years' maturity at rates not exceeding the ceilings of overnight alternate reference rate plus 400 basis points as against 200 bps at present, Das said.

In addition to the overnight ARR, RBI has increased the spread for banks to 400 bps from a spread of 250 bps currently. Similarly for deposits of 3-5 years maturity, the celling has been increased to overnight ARR plus 500 bps as against 300 bps at present.

The rate relaxation will be available till Mar 31, 2025, he added.

"It is a facilitation that we have provided to attract more inflows and an opportunity for NRIs to invest," Das said at the post monetary policy conference. Forex reserves are quite robust despite the recent depletion as it was because of valuation losses, he added.

FCNRB deposits are fixed-term deposit accounts that allow non-resident individuals to invest in foreign currencies and earn interest and FCNRB accounts are available in a variety of currencies.

Since the account is maintained in foreign currency, it secures funds against currency fluctuations during the tenure of the deposit.

Like a non-resident external bank account, the funds in this account and the interest earned are tax-free in India. These accounts let a user transfer funds from NRE account or vice versa.

Commonly used currencies are Australian Dollar, British Pound, Canadian Dollar, Euro, Japanese Yen and US Dollar.