HDFC Bank raises 3-5 year FCNR(B) dollar deposit rate by 25 bps to 6.25%

India's largest private sector lender, HDFC Bank, has raised the interest rate on its three- to five-year Foreign Currency Non-Resident (Bank) [FCNR(B)] dollar deposits by 25 basis points (bps) to 6.25 per cent from 6 per cent, effective August 1, as banks intensify efforts to mobilise foreign currency deposits under the Reserve Bank of India's (RBI's) concessional swap scheme.

The rate increase comes as the RBI's special swap window enters its final two months, a period expected to see the strongest mobilisation of FCNR(B) deposits.

Among large private sector lenders, ICICI Bank and Axis Bank continue to offer 6 per cent on three- to five-year dollar FCNR(B) deposits. State Bank of India (SBI) is offering 6 per cent on five-year FCNR(B) deposits of over $1 million.

Smaller lenders have also started offering higher returns. AU Small Finance Bank has increased the peak interest rate on FCNR(B) deposits to 7.4 per cent from 7.1 per cent for deposits with a tenor of three to four years. The bank has also raised the peak rate on non-resident external (NRE) fixed deposits to 7.6 per cent from 7 per cent for maturities of 36 months and one day to 45 months.

The move comes amid strong mobilisation under the RBI's concessional swap facility.

On Saturday, the central bank said banks had mobilised nearly $41 billion in foreign currency inflows as of July 31 through fresh FCNR(B) deposits, overseas foreign currency borrowings (OFCBs) and external commercial borrowings (ECBs).

FCNR(B) deposits accounted for the bulk of the inflows at $36.7 billion, followed by $2.57 billion through OFCBs and $1.5 billion through ECBs.

The latest mobilisation has already surpassed the nearly $34 billion raised under the RBI's special FCNR(B) deposit scheme in 2013. Overall inflows under the current concessional swap window have comfortably exceeded the 2013 mobilisation in less than two months since the facility became operational.

Banks are expected to continue raising FCNR(B) deposit rates over the coming weeks as they compete for a larger share of non-resident deposits before the concessional swap window closes at the end of September.