Banks Stay Cautious on FCNR Deposit Rates Despite RBI Relaxation

Foreign Currency Non-Resident (FCNR-B) deposits have seen limited inflows even after the Reserve Bank of India (RBI) allowed banks to raise deposit rates by up to 150 basis points in December 2024. This was aimed at improving foreign currency inflows, with the relaxation in place until March 31, 2025. However, banks reported just $58 million in FCNR-B inflows for December. 

Combined inflows for December and January stood at $612 million, compared to $960 million in the previous two months. Inflows peaked at $1.876 billion in September 2024.

Global Borrowings Remain Cheaper

Many banks are opting for foreign currency funds through syndication loans and other overseas borrowings, which are currently more cost-effective than raising FCNR-B deposits. Softening interest rates in global markets have made these funding routes more accessible. 

As a result, banks are not increasing FCNR-B rates aggressively, despite the RBI’s temporary relaxation.

Limited Change in FCNR-B Rates

Some banks have left their FCNR-B deposit rates unchanged for several months. For instance, Indian Overseas Bank has not revised its rates since October 2024. CSB Bank also confirmed that its existing inflows are sufficient to meet foreign currency lending requirements, so there has been no immediate need to revise rates upward.

Flat Demand for Foreign Currency Loans

The demand for foreign currency loans within India has remained largely unchanged. This has further reduced the incentive for banks to increase deposit rates to attract additional foreign currency funds. Institutions like Karur Vysya Bank have indicated a preference for more cost-effective sources of capital, given the stagnant demand.

Selective Use of FCNR Deposits

Some banks are seeing continued interest from existing customers who use FCNR-B accounts as a hedge against currency risk. However, this interest has not translated into higher deposit rates or significant changes in overall strategy.

Conclusion

Banks are to continue with a cautious approach unless there is a notable shift in global rates or domestic demand for foreign currency credit.

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