RBI hikes rate cap on banks' FCNR deposits

Governor Shaktikanta Das says relaxation will be available till 31 March

- Anshika Kayastha

The Reserve Bank of India's decision to increase the interest rate ceilings on Foreign Currency Non-Resident (Banks) Account or FCNR(B) deposits is aimed at supporting foreign inflows into the country, the RBI governor and economists said, as the domestic currency battled a slump against the dollar.

FCNR (B) is a deposit scheme that allows non-resident Indians (NRIs), persons of Indian origin (PIOs) and overseas citizens of India (OCIs) to invest their foreign earnings in Indian fixed deposit accounts. Such deposits can be made in multiple currencies such as the US dollar, British pound sterling, Australian dollar, euro and Canadian dollar.

"The move to incentivize the FCNR borrowings (by raising interest rate ceiling) reflects the fact RBI would be weighing the cost of heavy FX (foreign exchange) intervention in the past two months amidst FPI (foreign portfolio investor) outflows and limited conviction on steady inflows ahead," said Madhavi Arora, lead economist, Emkay Global Financial Services.