Bandhan Bank Boosts FCNR Deposit Rates Following RBI Swap Facility

Kolkata-based Bandhan Bank has announced an increase in its Foreign Currency Non-Resident (Banking) or FCNR(B) deposit rates, now offering up to 7.1% for maturities ranging from three to five years. This adjustment by Bandhan Bank directly responds to a recent policy initiative by the Reserve Bank of India (RBI). The RBI introduced a U.S. dollar-Indian Rupee (USD-INR) foreign exchange swap facility specifically for banks that mobilize new FCNR(B) deposits with tenures of a minimum of three years and a maximum of five years. This swap facility aims to mitigate the foreign exchange risk for banks, making FCNR(B) deposits more attractive for them to raise. FCNR(B) deposits are an important source of foreign currency funding for Indian banks, allowing non-resident Indians (NRIs) to deposit foreign currency earnings in India without currency conversion risk for the depositor. The higher rates offered by Bandhan Bank, and likely other banks following suit, are intended to capitalize on the RBI's risk-mitigation measure, thereby attracting a larger inflow of foreign currency into the Indian banking system. From an economic perspective, the RBI's move and subsequent bank actions like Bandhan's are designed to bolster India's foreign exchange reserves and potentially stabilize the rupee. By incentivizing foreign currency inflows, the central bank aims to provide liquidity and strengthen the external sector amid global economic uncertainties. For banks, this facility offers a de-risked pathway to acquire foreign currency funds, which can be utilized for foreign currency lending or swapped into rupees for domestic credit growth, potentially impacting interest rate dynamics in the broader market.