NRIs can now earn 2x interest on deposits in India
The Reserve Bank of India (RBI) has announced a major hike in the interest rate cap on Foreign Currency Non-Resident Bank (FCNR(B)) deposits. This instrument enables non-resident Indians (NRIs) to deposit their foreign currency savings with Indian banks. Under the new policy, banks can offer rates up to 400 basis points above the Overnight Alternative Reference Rate (ARR), for deposits maturing between one and three years.
A strategic move to attract foreign currency?
The RBI's decision to double the interest rate cap from the previous limit of 200 basis points over ARR, is a strategic move to attract more foreign currency flows. This policy change is part of broader efforts by the RBI to strengthen the Indian rupee and ensure financial stability amidst global uncertainties. It also aims to support India's external sector as the rupee has been consistently weakening against the US dollar, reaching new record lows over the past year.
Industry experts weigh in on RBI's decision
Rajiv Anand, Deputy Managing Director of Axis Bank, told CNBC-TV18 that although the RBI's move is in line with its attempts to attract dollar deposits, the current market scenario could restrict its immediate influence. He proposed that further incentives like a 50-bps cut in cash reserve ratio could prompt banks to mobilize more deposits from NRIs.
