RBI policy: Hike in FCNR(B) deposit rate ceiling to attract limited flows

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RBI policy: Hike in FCNR(B) deposit rate ceiling to attract limited flows - Business Standard

Quick Summary:

Hitting the revised upward ceiling will increase the covered cost of funds through the FCNR route significantly adding to the impact due to the recent surge in forward premium induced by the large rupee volatility,” said Mandar Pitale, head of treasury, SBM Bank India.

However, he added that while the interest rate differential between India and the US remains low, this move by the RBI is aimed at providing banks an additional avenue for raising funds, thereby encouraging more dollar inflows.

Currently, interest rates on FCNR(B) deposits are subject to ceilings of overnight ARR for the respective currency/swap, plus 250 bps for deposits of 1 year to less than 3 years’ maturity.