The RBI has allowed banks to raise fresh foreign currency non-resident bank, or FCNR (B) deposits, and non-resident (external) rupee deposits without the current caps on interest rates. This relaxation will be available up to October 31. The RBI has also exempted banks from maintenance of cash reserve ratio and statutory liquidity ratio on these deposits till November 4. The relaxation of norms could enable banks to increase interest rates by 25-30 basis points.
However, banks may not offer much higher rates on foreign currency deposits due to rising hedging costs.
The rates offered by Indian banks on FCNR (B) deposits are lower compared to domestic deposits because of the hedging cost. Foreign exchange risk is borne by banks that raise such deposits.