What is the story about?
The Reserve Bank of India (RBI) has temporarily eased the interest-rate restrictions on select Non-Resident External (NRE) and Foreign Currency Non-Resident [FCNR(B)]
deposits giving banks greater freedom to offer higher interest rates on select deposits held by Non-Resident Indians (NRIs). Under amendment directions issued on Wednesday, RBI has temporarily removed interest rate restrictions on fresh NRE deposits with maturities of three years and above, as well as FCNR(B) deposits with tenors of three to five years. The relaxation will remain in force until September 30, 2026.
What Changes under new rule?
In the previous arrangement, banks could not offer interest rates on NRE deposits that were higher than the rates offered on comparable domestic rupee fixed deposits.
Now, the restriction has been temporarily withdrawn for fresh NRE deposits of three years and above, and NRE deposits renewed upon maturity.
Banks can now offer rates above domestic fixed-deposit rates if they choose to do so.
Transfers from NRO accounts to NRE accounts will not qualify for this exemption.
The RBI has also temporarily removed the interest rate ceiling on fresh FCNR(B) deposits with maturities of three to five years. Until September 30, 2026, banks can offer rates above those ceilings if they want to attract foreign currency deposits.
Leading Indian banks have come forward to raise interest rates on Foreign Currency Non-Resident (Bank), or FCNR(B), deposits, in a bid to attract non-resident Indians (NRIs) Dollar and hedge the weakening Rupee.
Earlier, banks were required to stay within RBI-prescribed limits linked to overnight benchmark rates and swap rates.
The changes announced by the RBI bring relief measures for the NRIs as it will translate into higher returns for them.
Banks are now free to compete aggressively for overseas deposits and may launch special deposit schemes offering rates above current levels.
