Private banks are taking all possible measures to mobilize FCNR(B) deposits before the Reserve Bank of India's (RBI) swap window closes on August 31. These measures include raising interest rates, using countdown timers on websites to create a sense of urgency among NRIs (Non-Resident Indians), expediting deposit commitments, and attracting funds from overseas bond markets to obtain US dollars, which are then used to attract more FCNR(B) deposits.
The swap scheme, announced on June 8 to increase the stable inflow of dollars, was initially set to run until the end of September, but the central bank shortened this period to the end of August, citing a 'encouraging reaction' to the measure and 'resulting foreign currency inflows.'
Following this change, Axis Bank, the third-largest private sector lender in India, increased the interest rate on FCNR(B) deposits exceeding $1 million to 6.40% for terms ranging from three to five years, effective August 17. This made it one of the first major banks to raise rates after the RBI shortened the preferential swap window for FCNR(B) deposits by a month.
Currently, Axis Bank offers the highest rate among major banks for such deposits. Previously, it offered 6.25%, and before the scheme started, the rate was 6%. For deposits under $1 million, it now offers 6.25%.
Federal Bank also increased the interest rate on FCNR(B) deposits to 6.40% from the previous 6.25%, starting August 17. The bank offers 6.40% on USD FCNR(B) deposits ranging from $500,000 to less than $3 million for terms of three to five years. For deposits of $3 million and above, the rate is 6.25% for three to five years, and 6.40% for four-five and five years.
Other mid-sized private banks may follow suit and adjust FCNR(B) rates to maximize fund mobilization before the window closes. HDFC Bank, India's largest private lender, and ICICI Bank, India's second-largest private lender, continue to offer 6.25% on these deposits, while SBI offers 6% on deposits exceeding $1 million for a five-year term.
Meanwhile, HDFC Bank and ICICI Bank have placed countdown timers on their websites, showing NRI clients the remaining time in days, hours, minutes, and seconds to take advantage of attractive interest rates on FCNR(B) deposits before the window closes.
Separately, ICICI Bank utilized the overseas bond market to raise $750 million through five-year dollar bonds at favorable rates. Other banks may also follow this example and quickly attract capital for leveraging and mobilizing a larger number of FCNR(B) deposits.
One senior private sector banker stated that the decision to raise FCNR(B) deposit rates remains uncertain: 'We might do it, we might not. We haven't decided yet.' He added that activity has significantly increased due to the shortened timeline: 'What usually happened between September 15th and 30th is now happening between August 15th and 30th. In that regard, yes, there is much more activity now. Due to the closure, customers are also feeling a sense of urgency.'
The banker noted that teams are working much faster because all parties—partners, clients, and internal teams—are aware of the new deadline. He also speculated that some banks might employ tactical moves, but this would not necessarily increase the overall volume of funds, only redistribute them among different banks.
A senior public sector banker emphasized that many had assumed the window would remain open until September, but since that is no longer the case, banks are raising rates to gather as much liquidity as possible.
According to the latest RBI data, banks have already attracted over $52 billion under this scheme as of August 13. Experts believe that the total mobilization through the RBI's preferential swap window for FCNR(B) deposits could reach $60–70 billion by the end of August, despite the early closure of the scheme.
SBI Research forecasts that FCNR(B) mobilization will reach $60–65 billion. This comes against the backdrop of the RBI's decision to shorten the window being a surprise to market participants, especially after RBI Governor Sanjay Malhotra previously indicated no plans for an early closure of the scheme.
Dhiraj Nim and Sanjay Mathur from ANZ noted that the RBI's decision to close the swap window a month earlier indicates that the scheme has largely achieved its objective. Since inflows have already exceeded $50 billion and are likely to increase by the end of August, foreign exchange reserve buffers have improved, and short-term external financing risks have decreased. Furthermore, the fundamental balance of payments picture appears less complex than previously feared. They also added that extending the scheme would likely yield diminishing returns.
