Ujjivan SFB Surges to 7.5% on FCNR-B, Leading Race as Banks Target NRI and Affluent Clients

Ujjivan SFB Surges to 7.5% on FCNR-B, Leading Race as Banks Target NRI and Affluent Clients​

Small finance banks (SFBs) are intensifying their competition in the highly competitive foreign currency non-resident bank deposit (FCNR-B) market. While most large private and public sector banks have increased their FCNR-B rates to 6.95 percent, a specialized group of lenders has pushed rates as high as 7.5 percent.

The race is fueled by the need for deposits across the banking sector. This movement occurs following the Reserve Bank of India's (RBI) measures aimed at encouraging foreign currency inflows. The RBI also previously removed the cap on interest rates applicable to these specialized deposits.

SFBs Take the Lead in FCNR-B Rate Aggression​

SFBs, which primarily serve micro-industries and underserved communities, have thrown themselves into the bidding war against their much larger peers. Ujjivan Small Finance Bank recently raised its dollar FCNR-B deposit rate for tenures of three to five years to 7.5 percent. This rate is currently the highest among all banks in the country.

Other SFBs are also aggressively catering to this segment. AU Small Finance Bank, the largest SFB in India, is offering up to 7.1 percent on three- to four-year FCNR-B deposits. Similarly, Equitas SFB has raised its rate for three to five-year tenures, providing up to 7.13 percent on FCNR-B.

The Strategic Advantage for Smaller Banks​

The drive for higher interest rates among SFBs stems from a crucial need for their balance sheets. Unlike mega banks, these smaller institutions face the immediate necessity of increasing their deposit profiles significantly.

Murali Vaidyanathan, Senior President and Country Head at Equitas Small Finance Bank, stated that attracting FCNR-B deposits at such high levels helps reduce the cost of funds. Furthermore, it provides critical visibility into the foreign currency market, allowing SFBs to tap into new Affluent and NRI customers.

Major Banks Set Market Benchmarks​

The competitive landscape also features major private and public sector banks adjusting their offerings. HDFC Bank has raised its FCNR-B deposit rates to 6 percent for tenures spanning three to five years. State Bank of India (SBI) meanwhile has offered up to 5.75 percent on these deposits.

Other mid-sized financial institutions are also participating in the heightened competition. Karur Vyasa Bank and Tamilnad Mercantile Bank have both raised their FCNR-B rates to approximately 7 percent.

While global giants like HDFC Bank and State Bank of India already possess extensive international presences, particularly in Singapore and the United Arab Emirates, these established networks allow them robust access to various markets. This is set to provide SFBs with opportunities to attract clients from different geographical regions as well.