The Reserve Bank of India (RBI) has provided clarifications on the operational aspects of Foreign Currency Non-Resident Bank (FCNR-B) deposits. This move aims to address concerns raised by banks regarding the mobilization of such deposits and related lending activities. Indian banks, including their overseas branches, are now allowed to extend loans to non-residents or issue standby letters of credit against FCNR-B deposits.
The RBI’s clarification also permits banks to provide loans to FCNR-B account holders and mark a lien on these deposits. This decision offers banks more flexibility in raising foreign currency deposits from non-resident Indians. Additionally, banks can engage in foreign exchange swaps with tenors of less than three years, provided they have mobilized fresh eligible FCNR-B deposits with a minimum original maturity of three years.
With the RBI’s announcement of hedging support for fresh three-year and five-year FCNR-B deposits, various public and private sector banks have raised their deposit rates to attract overseas funds. Banks like Yes Bank, Canara Bank, South Indian Bank, and AU Small Finance Bank have increased FCNR-B deposit rates significantly. Market experts anticipate that these higher deposit rates, combined with the RBI’s swap support and operational clarifications, may lead to increased non-resident inflows in the upcoming weeks.
The Indian rupee concluded at 94.73 against the US dollar on June 23, slightly up from the previous trading session. Analysts predict a potential appreciation of the domestic currency in the near future as fresh FCNR-B inflows enter the banking system.
