Mumbai: Reserve Bank of India (RBI) has announced an increase in the interest rate ceilings on Foreign Currency Non-Resident Bank [FCNR(B)] deposits in an effort to attract more foreign investment. This move comes at a time when the Indian rupee has been under pressure and foreign investors have been pulling money out of the Indian markets.
Background
The Indian rupee has been facing downward pressure in recent months due to a number of factors, including the strengthening of the US dollar, selling by foreign portfolio investors, and higher yields in the United States. As a result, foreign investors have been selling their investments in Indian stocks and bonds, which has further weakened the rupee.
What are FCNR(B) Deposits?
FCNR(B) deposits are term deposits that can be opened by non-resident Indians (NRIs) in foreign currency with banks in India. These deposits are a popular investment option for NRIs as they offer a safe and secure way to invest their money in India.
What has the RBI done?
In order to make FCNR(B) deposits more attractive to NRIs, the RBI has increased the interest rate ceilings on these deposits. Effective December 6, 2024, banks are permitted to raise fresh FCNR(B) deposits of 1 year to less than 3 years maturity at rates not exceeding ARR plus 400 bps and deposits with maturity between 3 to 5 years at rates not exceeding ARR plus 500 bps. This relaxation will be available till March 31, 2025.
What is ARR?
ARR stands for Overnight Alternative Reference Rate. It is a benchmark interest rate that is used to price loans and other financial products.
What does this mean for NRIs?
This means that NRIs can now earn higher interest rates on their FCNR(B) deposits. This makes these deposits a more attractive investment option and could help to attract more foreign investment into India.
What is the impact of this move?
It is hoped that this move will help to stabilize the rupee and attract more foreign investment into India. This would help to boost the Indian economy and create jobs.
