Indian banks have begun offering up to 7.1% on dollar deposits after the Reserve Bank of India eased hedging requirements for non-resident customers, according to a Business-Today report published on the Times of India website. The move, which pushes Foreign Currency Non-Resident (Bank) deposit rates sharply higher, has reopened a tidy arbitrage between offshore borrowing costs and onshore returns.
Rate Hikes Across Banks
The sharpest moves are visible among smaller lenders. Yes Bank has lifted rates by as much as 335 basis points, offering up to 7.1% on five-year dollar deposits. AU Small Finance Bank is quoting 7.1% for three-to-four-year tenures, while Karur Vysya Bank is at 7% for three-to-five-year deposits. Larger peers have moved more cautiously: HDFC Bank is offering about 6%, and Bank of Baroda around 6% for one-to-two-year money. Punjab National Bank has revised its FCNR(B) rates to as much as 6.1%, aligning with the central bank's push to draw in foreign currency.
| Bank | Tenor | Rate |
|---|---|---|
| Yes Bank | 5 years | 7.1% |
| AU Small Finance Bank | 3-4 years | 7.1% |
| Karur Vysya Bank | 3-5 years | 7.0% |
| HDFC Bank | 1-2 years | ~6.0% |
| Bank of Baroda | 1-2 years | ~6.0% |
| Punjab National Bank | Up to 6.1% | 6.1% |
Impact on Trade Finance and Forex
The new deposit window has opened at a time when banks are seeing a rise in funding costs, which in turn has pushed up their marginal cost of lending rates. Bankers point out that at current rates, the return on dollar deposits is close to what NRIs were getting in rupee-denominated deposits. For trade executives managing forex exposure, the higher dollar deposit rates create an arbitrage opportunity: companies can now earn up to 7.1% on USD cash parked in India, compared to near-zero rates in many offshore markets. This could incentivise importers to hold dollar balances longer, affecting working capital strategies.
Furthermore, regulatory easing now allows overseas banks to extend large dollar loans to NRIs for parking into these deposits, effectively taking exposure to Indian banks. This mechanism can be used by multinationals with NRI-linked treasury operations to shift dollar liquidity into India, potentially increasing the supply of dollars in the banking system and influencing forward premium dynamics.
Rupee Movement and Broader Context
The rupee gained nearly seven paise on Wednesday despite uncertainty taking a toll on equity markets, the report noted. The rise in dollar deposit rates may have contributed to the rupee's strength by attracting foreign currency inflows. For importers, the strengthening rupee reduces the cost of paying overseas suppliers, while exporters may face headwinds if the appreciation persists.
Regulatory Corner: REIT and InvIT Lending Norms
In a related regulatory development, the RBI has opened the door for banks to fund Real Estate Investment Trusts and Infrastructure Investment Trusts, but only within tight guardrails. Final rules retain caps on exposure, asset-quality filters, and repayment discipline. Overseas branches may join REIT financing via syndication, though with a 20% participation cap and a stiff 150% risk weight; the earlier insistence on an insolvency framework has been broadened to an "effective recovery" test abroad.
What to Watch
Trade finance professionals should monitor whether the higher deposit rates persist as banks' funding costs evolve. The next key milestone will be the RBI's review of the hedging window and its impact on forward premia, which could alter the attractiveness of these deposits for cross-border cash management.
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