Interest Rates on FCNR(B) Deposits Revised
The Reserve Bank of India (RBI) has announced a revision in interest rate ceilings on Foreign Currency (Non-resident) Accounts (Banks) [FCNR(B)] deposits. This decision was detailed in paragraph 2 of the Statement on Developmental and Regulatory Policies, part of the Bi-monthly Monetary Policy Statement for 2024-25, dated December 6, 2024. The revision also references guidelines in Section 19 of the Master Direction (MD) on Interest Rate on Deposits issued on March 3, 2016, and Section 18 of the Master Direction on Co-operative Banks – Interest Rate on Deposits dated May 12, 2016, as amended.
Under existing policies, interest rates on FCNR(B) deposits are subject to ceiling limits. For deposits of 1 year to less than 3 years maturity, the ceiling is the Overnight Alternative Reference Rate (ARR) for the respective currency/swap, plus 250 basis points. For deposits with maturities of 3 years and above, and up to 5 years, the ceiling is ARR plus 350 basis points.
Effective December 6, 2024, the RBI has raised these ceilings. For FCNR(B) deposits with maturities of 1 year to less than 3 years, the new ceiling rate is ARR plus 400 basis points. For deposits with maturities of 3 years to 5 years, the ceiling rate has been increased to ARR plus 500 basis points. This change represents a significant increase of 150 basis points for both categories, aiming to make FCNR(B) deposits more attractive for non-resident account holders.
The “Overnight Alternative Reference Rate” is a benchmark used for determining interest rates in foreign currencies, ensuring alignment with global market conditions. The increase in ceiling rates allows banks greater flexibility to offer higher interest rates to attract foreign currency deposits from non-residents.
This relaxation will be available for fresh FCNR(B) deposits raised by banks until March 31, 2025. Beyond this date, further guidance from the RBI will determine whether these enhanced ceiling rates will continue or revert to previous levels.
The decision is expected to boost foreign currency inflows, strengthen foreign exchange reserves, and enhance banking liquidity. Banks must adhere to the revised ceilings while structuring competitive deposit rates to leverage this opportunity effectively. The policy revision underscores the central bank’s commitment to aligning deposit schemes with evolving economic and market condition.
