Public sector lender Indian Bank is targeting $2 billion in foreign currency non-resident (bank) deposits following the Reserve Bank of India's decision to lift the interest rate cap on fresh FCNR(B) deposits with maturities of three to five years until September 30, 2026, according to a report by Business-Today.
The bank has already seen a spurt in inflows, collecting $140 million between June 15 and July 9. "So far, we have secured $140 million between June 15 and July 9. We plan to raise around $2 billion by Sept this year. We already have a pipeline of $1 billion," said Binod Kumar, MD & CEO of Indian Bank. The target is more than four times the bank's FCNR(B) deposit mobilisation in FY26, when it raised $457 million.
RBI Policy Shift and Deposit Rate Revision
To attract these deposits, Indian Bank has revised its interest rate on FCNR(B) deposits to 6% from 5.5%. The RBI had earlier removed the interest rate ceiling on fresh FCNR(B) deposits of 3-5 year maturities, giving banks flexibility to offer competitive rates. This policy change is aimed at encouraging foreign currency inflows from non-resident Indians (NRIs).
| Metric | Value |
|---|---|
| Target FCNR(B) deposit mobilization | $2 billion |
| Already secured (June 15 - July 9) | $140 million |
| Current pipeline | $1 billion |
| Revised interest rate | 6% (from 5.5%) |
| FY26 total FCNR(B) deposits raised | $457 million |
Bank's Financial Performance
Alongside the deposit drive, Indian Bank reported its Q1 results. Net profit rose 10% to Rs 3,273 crore from Rs 2,973 crore in the year-ago period. The increase was driven by a higher yield on advances and strong growth in net interest income, among other factors.
Implications for Trade Finance and Capital Costs
For CFOs and treasury professionals, the FCNR(B) deposit mobilization represents a significant source of foreign currency funding at a known cost. With annualised returns estimated at 13%-14% for depositors, according to Binod Kumar, the bank can on-lend these funds for trade finance and working capital needs of exporters and importers. The removal of the interest rate ceiling may also prompt other banks to raise rates, potentially increasing competition for NRI deposits and affecting the overall cost of foreign currency funds in the system.
However, the additional liquidity from FCNR(B) inflows could ease pressure on the rupee and provide a stable source of external commercial borrowing alternatives. The pipeline of $1 billion already in the works suggests strong demand from NRIs for these instruments, which offer attractive yields compared to domestic deposits.
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