Private banks hike rates on fresh FCNR(B) deposits to attract dollar-based inflows
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Private lenders including HDFC Bank, YES Bank and AU Small Financial Bank have hiked their interest rates on FCNR(B) deposits, after the Reserve Bank of India (RBI) announced concessional swaps to incentivise such deposits in a move to boost capital inflows.
HDFC Bank has hiked its FCNR(B) deposit rate to 6% from an earlier 3.65% for tenures of 3-5 years. Other private sector lenders, YES Bank and AU Small Financial Bank, have also hiked their rates on fresh FCNR(B) deposits to 7.1%, Bloomberg reported.
The RBI, on June 8, announced special swap windows for external commercial borrowings (ECBs) and FCNR(B) issues. It also said that authorised dealer banks planned to raise FCNR(B) deposits with maturities of 3-5 year range will be eligible to a facility where the RBI would bear the hedging costs, till September 30, 2026.
These moves, as and when they materialise, could help the bringing in much needed capital—in dollars—and reduce pressure on the rupee.
The rupee has been one of the most hit Asian currencies against the dollar; it is down 5.9% against the dollar in CY2026.
The aim from banks is to offer as attractive rates as possible to non-resident Indians and people of Indian origin. In 2013, when FCNR(B) offerings were issued, India managed to raise $34 billion in total: $26 billion through FCNR(B) route and $8 billion through ECBs.
Rates up on fresh FCNR(B) deposits
“While the 2013 FCNR-B mobilisation exercise garnered nearly $26 billion, the operating environment today is materially different. During that period, the interest rate differential between India and the US was significantly wider (750-800 bps) enhancing the attractiveness of FCNR-B deposits,” V Ramachandra Reddy, head of treasury at Karur Vysya Bank told Fortune India.
“In the current environment, the interest rate differentials narrowed and further investors have access to a broader range of global investment opportunities offering competitive returns, which may influence mobilisation dynamics. Nevertheless, the RBI’s comprehensive support measures are expected to improve the attractiveness of NRI deposits,” he added.
The RBI’s decision to provide an at par swap facility effectively absorbs the hedging cost for banks, creating a strong incentive to mobilise fresh FCNR(B) deposits. “Large banks, given their size, reach and balance sheet strength, may be able to attract more FCNR(B) deposits even at moderate rates while maintaining a favourable cost of funds relative to comparable domestic deposits,” Reddy said.
Reflecting this trend, Karur Vysya Bank has increased its FCNR(B) $ deposit rate for the 3–5 year tenor to 7% with effect from June 10, 2026.
Market participants estimate that the RBI’s latest measures could attract $50–60 billion through the combined FCNR(B) and ECB flows.
Sakshi Gupta, principal economist at HDFC Bank, said: “The RBI has taken swift measures, including reducing currency risks for raising dollar flows through FCNR deposits and ECBs. While it is difficult to assess where the rupee could stabilise—due to complex external factors—we expect it could touch 93 against the dollar in the coming quarter.“
“These measures will reduce the probability of the rupee moving to 98-99 levels against the dollar,” she told Fortune India.
“The RBI has gone beyond conventional policy measures to strengthen confidence in the rupee and augment foreign currency inflows. Apart from supporting the balance of payments and foreign exchange reserves, these inflows are expected to inject durable rupee liquidity into the banking system through the swap mechanism,” Reddy said.
“This additional liquidity is likely to ease funding conditions, support the bond market and contribute to lower money market rates across the yield curve,” he said.
Overall, the measures underscore the RBI’s commitment to maintaining currency stability while simultaneously supporting domestic liquidity conditions and financial market stability.
Rupee resistance at 95 to dollar
Jateen Trivedi, vice-president and research analyst (commodity and currency) at LKP Securities says: “The level of 95.00 continues to act as a key resistance zone, and sustained strength above this level is required for the rupee to extend gains further. While easing pressure from bullion and energy imports has provided temporary relief, the broader trend remains dependent on global commodity prices, dollar Index movement, and foreign fund flows,” he said.
Market participants will closely watch the upcoming US CPI inflation data, which is expected to provide important direction for commodities, the dollar Index, and subsequently the rupee. “A higher-than-expected inflation reading could support the dollar and keep pressure on emerging market currencies, while a softer reading may provide some relief,” Trivedi said.
“For now, the 95.00–95.50 range remains the immediate trading band, with a decisive breakout on either side likely to determine the next directional move in the rupee," Trivedi added.