Bag with american dollar symbol and american money istock photo for BL
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Max Zolotukhin
Small and mid-size banks don’t want to be left behind in the race to mobilise fresh foreign currency non-resident (bank)/ FCNR (B) deposits. They are playing the “interest rate” gambit.These banks are overcoming the inability to offer leverage to their non-resident Indian (NRI) customers by upping interest rates on these deposits so that their customers don’t shift elsewhere.Rate hikeFor example, Equitas Small Finance Bank (SFB) has upped its interest rate on FCNR (B) deposits of $10,000 and above and in the 3-5 years tenor from 7.13 per cent to 7.52 per cent.Likewise, AU Small Finance Bank has raised its FCNR(B) deposit rates from 7.10 per cent to 7.40 per cent for the 3 to less than 4 year tenure, irrespective of the size of the deposit.Tamilnad Mercantile Bank increased interest rates on FCNR(B) deposits of 3-5 years tenure from 7 per cent to 7.25 per cent, irrespective of the size of the deposit, earlier this month.The interest rates being quoted by these banks are, on an average, about 150 basis points higher than that by large banks such as State Bank of India, HDFC Bank and ICICI Bank“It is not that NRIs will only go for leverage and there will be no deposit outside of leverage. Some large banks have a minimum deposit size of, say, half a million to a million dollars, for offering leverage.“While some NRIs will have the wherewithal to place this quantum of deposit and take leverage against it, not everybody will have these kinds of resources at their disposal. Given the size (total deposits: ₹48,976 crore and gross advances: ₹47,641 crore) of our bank, we don’t need $2 billion,” said PN Vasudevan, MD & CEO, Equitas Small Finance Bank.He emphasised that even if the FCNR (B) deposit size can be doubled or taken beyond that it will be a great benefit for his bank in terms of supporting credit growth.The bank’s FCNR deposit, which was launched in Q3 (October-December) FY26, has already garnered about $42 million.According to AU SFB, FCNR deposits remain a key channel for mobilising overseas Indian savings into India, while offering protection against exchange rate fluctuations.The bank, in a statement, said the revision in its deposit rates is further supported by the RBI’s announcement regarding “Swap Facility for FCNR(B) deposits”, which provides additional headroom for banks to offer more competitive foreign currency deposit rates.As part of the measures to attract foreign capital and curb excessive and disruptive fluctuation in the rupee amid the ongoing West Asia war, the RBI, on June 5, announced that it will bear the full hedging cost for banks raising fresh 3–5-year FCNR (B) deposits till September 30.Pre-emptionsThe central bank also exempted these deposits from statutory pre-emptions such as maintenance of cash reserve ratio and statutory liquidity ratio.In an interaction with businessline on July 26, RBI Governor Sanjay Malhotra observed that beginning June 8th till date, banks have mobilised almost $32 billion, with most of it coming through FCNR (B) deposits.Small and mid-size banks are constrained in offering leverage to their NRI customers as they neither have overseas branches nor a presence in the GIFT ((Gujarat International Finance Tec) City.However, these banks are trying to negotiate with foreign banks so that their NRI customers can get loans (leverage). The loan proceeds can be placed as FCNR (B) deposits with the former. The loans will be offered by the foreign banks to NRIs on the strength of the standby letter of credit issued by the Indian banks.Published on July 28, 2026
