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FCNR(B) foreign currency NRI deposits
What it is
Foreign Currency Non-Resident (Banks) deposits - term deposits held by NRIs in permitted foreign currencies, typically one to five years. The bank carries no exchange risk, since both principal and interest are denominated and repaid in the same foreign currency
Interest rate ceilings are set by RBI as a spread over the currency's reference benchmark, and the ceiling is periodically relaxed to attract inflows
Impact on industries
- A policy lever as much as a product - RBI raises the permitted spread when the rupee is under pressure, making it a tool for supporting the currency
- Gives banks access to foreign currency funding for export credit and foreign currency lending without taking on exchange exposure
- Flows are opportunistic, tracking the differential against dollar deposit rates rather than any bank relationship, so balances can leave as fast as they came
- Concentrated maturities create refinancing cliffs, and swap costs to convert the proceeds into rupee lending can erode the apparent cost advantage