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Pradeep Gaur/Mint
Pradeep Gaur/Mint

Banks revise FCNR deposit rate every month

Interest rate on FCNR(B) deposits is fixed on the basis of the Libor/swap rate.

Several banks, including State Bank of India, ICICI Bank Ltd, Punjab National Bank, Bank of Baroda, HDFC Bank Ltd and Union Bank of India have revised their interest rates on foreign currency non-resident bank (FCNR)(B) deposits with a maturity of one to five years. FCNR(B) accounts are typically meant for non-resident Indians (NRIs) who want to maintain a deposit in India in a foreign currency without taking exchange rate risk. The change, effective 1 September, has been in the range of 2 basis points (bps) and 8 bps compared with the same period last month. One basis points is a hundredth of a percentage point. Every month banks revise the interest rate on FCNR(B) deposits.

Why do banks revise fcnr deposit rates?

Interest rate on FCNR(B) deposits is fixed on the basis of the London inter-bank offered rate (Libor)/swap rate prevailing on the last working day of the previous month. According to Reserve Bank of India (RBI) instructions, Libor/swap rate forms the base for fixed ceiling rates. For example, the revised FCNR(B) deposit rate that came into effect on 1 September is based on the Libor rate released on 31 August at 5pm. Revision is done on a monthly basis and comes into effect on the first day of every month.

The Libor/swap reference rate is published on Foreign Exchange Dealers’ Association of India’s (Fedai) website (http://tinyurl.com/ccaqjuc). All banks use this data when they revise FCNR(B) deposit rates.

How are FCNR deposit rates linked to Libor/swap?

Libor acts as a benchmark for those who want to borrow on the London interbank market for a given period of time. The rates are released every day at 11am for 15 different time periods and for 10 currencies. In India, banks are asked to use Libor as the reference rate for FCNR (B) deposits. RBI had stated in a release issued in May that interest rate on FCNR(B) deposits for the maturity period of one year to less than three years will be Libor/swap plus 200 bps and for maturity period of three-five years, it will be Libor/swap plus 300 bps. For the purposes of operational convenience, the interest rates are rounded off to the nearest two decimal points.

What it means for you

FCNR(B) deposits are maintained in US dollar, pound, euro, Australian dollar, Canadian dollar, yen, Swiss franc, New Zealand dollar, Swedish krona and Danish krone. As the account is maintained in a foreign currency, it doesn’t carry any forex rate risk and, therefore, is considered ideal for NRIs.

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