Banks Cut FCNR Rates as RBI Swap Window Ends

Banks have started sharply reducing FCNR(B) deposit rates after the RBI’s special swap window came to an end, and I think this shows how quickly deposit pricing can change once a temporary liquidity incentive disappears. During the special window, banks had raised FCNR(B) rates aggressively to attract foreign-currency deposits. Now those rates are being reversed. HDFC Bank reduced its five-year special FCNR(B) rate from 6.3% to 3.2%, while ICICI Bank cut its rate from 6% to 2.9%. SBI has also reduced its five-year rate from 5.8% to 3.1%. The scale of mobilisation was significant. Indian banks collectively raised around $65.4 billion through FCNR(B) deposits by August 24, while overall foreign-currency inflows under RBI facilities, including overseas borrowings, reached around $73 billion. For me, the important part is what happens next. Banks now have a sizeable pool of foreign-currency deposits, but with the RBI-supported economics of raising these funds gone, there is little reason to continue paying unusually high rates. This is also a good example of how RBI liquidity measures can influence banks’ funding decisions. When the incentive changes, deposit rates and the preferred source of funding can change very quickly. Learning Outcome: Deposit rates are influenced not only by competition between banks but also by liquidity conditions and RBI measures. Temporary incentives can make certain funding sources attractive, but pricing can reverse quickly once those incentives are withdrawn.