After RBI measures, banks offer up to 7% on dollar deposits

MUMBAI: Banks have begun passing on benefits from the Reserve Bank of India’s free hedging window to non-resident customers, pushing up Foreign Currency Non-Resident (Bank) deposit rates and, in the process, reopening a tidy arbitrage between offshore borrowing costs and onshore returns.

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 6% for the 3-5 year maturity bucket. 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.

The rupee gained nearly seven paise on Wednesday despite uncertainty taking a toll on equity markets. The new deposit window has opened up 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. The scheme, though aimed at NRIs, has widened the funding playbook. Regulatory easing now allows overseas banks to extend large dollar loans to NRIs for parking into these deposits, effectively taking exposure to Indian banks.

RBI allows banks to lend to REITS

RBI has opened the door for banks to fund Real Estate Investment Trusts and Infra 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.
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