Bandhan Bank Hiked FCNR Rates to 7.1% After RBI Swap

Bandhan Bank raised the interest rate on FCNR(B) deposits to 7.1% for amounts of $1 million and above with tenors of three to five years, the lender said Friday. Deposits below that threshold now earn 7%. The revision follows the Reserve Bank of India's introduction of a USD-INR swap facility on fresh FCNR deposits of at least three years.

The RBI's swap gives banks a foreign exchange hedge on these deposits, making it cheaper for them to offer higher rates. The central bank aims to attract dollar inflows to ease domestic liquidity and support the rupee. The Indian rupee has weakened about 0.5% against the dollar this year, which adds urgency to dollar-raising efforts like this.

FCNR deposits let non-resident Indians hold foreign currency in India without conversion risk. The deposit and interest remain in the original currency, shielding holders from rupee depreciation. "This offering allows them to lock in competitive returns for a longer duration while effectively mitigating currency-related risks," said Rajinder Kumar Babbar, executive director and chief business officer at Bandhan Bank.

Banks can use the swap to lock in forward cover for the dollar exposure, reducing the cost of offering higher deposit rates. Other banks may also lift rates to compete for NRI dollars, especially with Indian deposit rates among the highest in Asia. The impact on the rupee will depend on how much new money flows in under the facility. The RBI did not set a cap on the swap, leaving the total to bank mobilization.

Bandhan Bank's move is effective immediately. market analysis