Special rates on FCNR deposits to go from Mar

From March onwards, banks cannot offer higher interest rates on their non-resident rupee deposits and will also have to cut interest rates on foreign currency non-resident (FCNR) deposits of more than three years.

The RBI will roll back the special dispensation under which it allowed banks to offer interest rates to NRIs that were higher than those on domestic deposits.

Further, the ceiling on rates of FCNR deposits will revert to 300 bps above Libor from 400 bps above Libor from March 1, the central bank said in a notification on Friday.

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Faced with a falling rupee, the RBI had hiked the interest rate ceiling on FCNR deposits in August 2013, to lure more dollars into the country.

The central bank had also introduced a special swap facility wherein banks could swap the dollars raised through these FCNR deposits with the RBI at a concessional rate. This move prompted banks to push FCNR products and the RBI garnered $34 billion through the swap window. The swap windows were closed by November end.

By end of November 2013, FCNR deposits had risen to an outstanding of $38.62 billion, a year-on-year accretion of $23.44 billion.