In FCNR (B) race, small banks raise deposit rates to woo NRIs

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Max Zolotukhin

Smaller and mid-sized banks aim not to fall behind in gathering new foreign currency non-resident (bank) or FCNR (B) deposits, turning to interest‑rate adjustments as their strategy.

To counter their lack of leverage offerings for NRI clients, these banks are raising deposit rates, hoping to keep those customers from moving to competitors.

Rate hike

For instance, Equitas Small Finance Bank lifted the rate on FCNR (B) deposits of $10,000 or more, with a 3‑ to 5‑year maturity, from 7.13 % to 7.52 %.

Similarly, AU Small Finance Bank increased its FCNR(B) rates from 7.10 % to 7.40 % for deposits held 3 to under 4 years, regardless of deposit size.

Earlier this month, Tamilnad Mercantile Bank raised the interest on its 3‑ to 5‑year FCNR(B) deposits from 7 % to 7.25 %, irrespective of the amount deposited.

On average, the rates offered by these banks exceed those of large lenders like SBI, HDFC Bank and ICICI Bank by roughly 150 basis points.

“It’s not that NRIs will solely pursue leverage and avoid deposits altogether. Certain large banks set a minimum threshold of about $0.5‑1 million before they extend leverage.”

“While some NRIs can afford to park such sums and use them as collateral for leverage, many lack that capacity. Considering our bank’s scale (total deposits ₹48,976 crore and advances ₹47,641 crore), we do not require $2 billion,” remarked PN Vasudevan, MD & CEO of Equitas Small Finance Bank.

He added that even doubling or surpassing the current FCNR (B) deposit base would greatly aid the bank’s credit expansion.

The bank’s FCNR deposit scheme, introduced in Q3 (Oct‑Dec) FY26, has already attracted roughly $42 million.

AU SFB notes that FCNR deposits continue to be a primary conduit for channeling overseas Indian savings into the domestic economy, while also shielding investors from currency swings.

In a press release, the bank said the rate adjustment is bolstered by the RBI’s “Swap Facility for FCNR(B) deposits,” which gives banks extra leeway to price foreign‑currency deposits more competitively.

As part of its efforts to draw foreign investment and limit excessive rupee volatility during the ongoing West Asia conflict, the RBI announced on June 5 that it will cover the full hedging expense for banks that raise new 3‑ to 5‑year FCNR (B) deposits through September 30.

Pre-emptions

The central bank also waived the usual statutory requirements—cash reserve ratio and statutory liquidity ratio—for these deposits.

In a discussion with businessline on July 26, RBI Governor Sanjay Malhotra noted that, since June 8, banks have gathered nearly $32 billion, the bulk of which flowed in via FCNR (B) deposits.

Smaller and mid‑sized banks face limits in providing leverage to NRI clients because they lack overseas branches and a footprint in GIFT City (Gujarat International Finance Tec).

Nevertheless, these banks are negotiating with foreign institutions to enable their NRI customers to obtain loans (leverage). The loan funds could then be parked as FCNR (B) deposits with the Indian bank, while the foreign lender extends the credit based on the standby letter of credit provided by the Indian bank.

Published on July 28, 2026