Actionable insights on equities, fixed-income, macros and personal finance Start 14-Days Free Trial
Actionable investing insights Get Free Trial

FCNR Deposits: Will the RBI’s 3.5% Swap Help?


The RBI now has a 3.5% swap available for FCNR deposits. Which means effectively the hedge cost for banks is now just 3.5%.

A quick look at what banks are offering today for FCNR deposits:

Bank USD 3 yrs INR 3 yrs Spread
SBI 3.95% 8.75% 4.80%
HDFC Bank 4.95% 8.75% 3.80%
Axis  4.95% 8.75% 3.80%
Yes 4.95% 8.75% 3.80%
Indusind 3.95% 8.75% 4.80%
ICICI 4.95% 8.75% 3.80%
Kotak 3.95% 8.50% 4.55%
PNB 4.95% 8.75% 3.80%

While some of this has changed (HDFC has upped by 1% for example) it looks like India is now offering NRI’s nearly 5%. FCNR interest is not taxed in India.

All banks will have to go to the 5% mark (Kotak, Indusind and SBI aren’t there yet).

Looking at current 3 year spreads of what they offer for rupee deposits, we see numbers that are close to 3.8%. At the hedge cost of 3.5% per annum, banks aren’t getting as phenomenal a deal as I first thought.

As of June end, there were $15 billion in FCNR deposits. This number hasn’t gone up by much, but remember that much of the depreciation in the rupee happened after June.

If they couldn’t attract anyone with rates as high as 4%, we have to hope that the 5% rate will attract some capital. However, it is unlikely that in a time of turmoil, people will trust India that easily.

I don’t doubt we will garner more such deposits, as 4.95% is way higher than any US bank is giving nowadays. (At, I saw CD rates of 0.25% to 1.45%)

However, rising yields in the US will probably make people want to wait. We will have to wait a couple months to see how the FCNR pick up happens – in any case, this scheme only applies till Nov 30.


Like our content? Join Capitalmind Premium.

  • Equity, fixed income, macro and personal finance research
  • Model equity and fixed-income portfolios
  • Exclusive apps, tutorials, and member community
Subscribe Now Or start with a free-trial