Banks feel the pinch amid FCNR push

“DOMESTIC DEPOSIT RATES will act as a ceiling. Banks will also have to assess how effectively they can deploy these foreign currency funds into the domestic credit market through rupee lending,” said a banker at a state-run lender.

- 

To attract those deposits, Indian banks have already moved aggressively, raising FCNR(B) rates by 200-300 basis points to a range of 5.25-7.13% for maturities of three to five years. The RBI has provided additional tailwind by agreeing to bear the entire hedging cost on fresh FCNR(B) deposits mobilised between June 8 and September 30 — a concession that makes dollar deposits substantially more attractive and removes a significant cost burden from banks.