Banks Surge FCNR Deposit Rates as RBI Intensifies Measures to Combat Capital Slowdown

Banks Surge FCNR Deposit Rates as RBI Intensifies Measures to Combat Capital Slowdown​

Major Indian banks have significantly hiked rates on Foreign Currency Non-Resident Bank (FCNR-BP) deposits in response to new incentives introduced by the Reserve Bank of India (RBI). This move is aimed at stimulating foreign currency inflows and bolstering capital stability within the country. Banks such as HDFC Bank, Yes Bank, and AU Small Finance Bank have accelerated their rates drastically to attract international deposits.

HDFC Bank Executes Steepest FCNR Rate Hike​

HDFC Bank, recognized as India’s largest private bank, has implemented a sharp hike in its FCNR-B deposit rates. The institution increased its rates by approximately 235 basis points (bps). This increase was applied to tenures spanning three to five years. HDFC is now offering up to six percent in the basket covering these three to five year terms.

Yes Bank and AU SFB Offer Rates Up To Seven Percent​

Following the RBI's mandate, Yes Bank and AU Small Finance Bank have also increased their offerings, providing attractive rates exceeding 7 percent. AU Small Finance Bank notably raised its USD deposit rate from 5.15 percent per annum to a new offering of 7.10 per annum. Similarly, Yes Bank has boosted rates by up to 335 bps, making deposits up to 7.1 percent for the five-year FCNR-B tenure.

RBI's Incentive Measures Prompt Major Rate Adjustments​

These aggressive rate hikes are a direct reaction to the RBI acknowledging a slowdown in FCNR-B deposit inflows. The central bank noted that only $946 million came through FY26, significantly lower compared to more than $7 billion seen in FY25. To counter this trend, the RBI introduced special incentives during its last Monetary Policy Committee (MPC) meeting.

The MPC measures include a dedicated swap window for fresh FCNR-B deposits and external commercial borrowings (ECBs). These enhanced incentives are available until the end of September and apply to both new and renewed FCNR-B deposits.

Market Estimates Point Towards Massive Inflows​

Financial experts estimate that inflows specifically through FCNR-B could range between $20 billion and $40 billion. When combined with ECBs, various market assessments project that total inflows could reach up to $70 billion. Securing such robust capital inflows is vital as it eliminates the possibility of a third consecutive year reporting a Balance of Payments (BoP) deficit in FY27.

The RBI previously set the concessional swap window rate for FCNR-B deposits at 3.5 percent per annum back in 2013. However, currently in 2026, the RBI has committed to absorbing the entire hedging cost for such foreign currency inflows, marking a significant policy shift.

Other Banks Await Opportunity to React​

While HDFC Bank, Yes Bank, and AU Small Finance Bank have promptly adjusted their offerings, other major financial institutions are yet to announce their revised FCNR-B deposit rates. Banks including Federal Bank, IndusInd Bank, and Axis Bank are among those that have yet to make public statements regarding rate revisions.