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Banks Slash Foreign Deposit Rates Post-RBI Window
2 Sep
Summary
- Indian banks significantly reduced interest rates on foreign-currency deposits.
- This reduction follows the closure of the RBI's special swap window.
- Inflows under the RBI facility reached $65.4 billion by August 21.
Following the closure of the Reserve Bank of India's (RBI) special swap window on August 31, Indian banks have drastically reduced the high interest rates previously offered on foreign-currency deposits. This marks an unwinding of the premium banks were willing to pay for long-duration dollar deposits once the RBI-supported economics disappeared.
Between June 8 and August 21, Indian banks collectively attracted $65.4 billion through FCNR(B) deposits, with overall foreign-currency inflows reaching $73 billion under RBI facilities. The strong response from non-resident depositors prompted the RBI to close the swap window earlier than anticipated, on August 31, instead of September 30.
Major banks like HDFC Bank, ICICI Bank, and SBI have implemented sharp cuts. For instance, HDFC Bank reduced its five-year US dollar FCNR(B) rate from 6.25% to 3.15%, a 310-basis-point decrease. ICICI Bank saw a similar 310-basis-point reduction, bringing its rate to 2.90%. SBI also reduced its rates, with a 295-basis-point difference for deposits above $1 million.
