We discuss how FCNR(B) deposits just became more attractive for NRIs
Recent changes in their interest rate have made them far more attractive
This is in the backdrop of depreciation in the value of the Rupee with respect to the Dollar
To relieve the pressure on the Rupee, RBI announced come steps in the first week of July
These steps have been followed by steps by Indian banks which have raised FCNR(B) interest rates
RBI has given banks the freedom to determine FCNR deposit interest rate till October 31, 2022
Many banks have already increased interest rates for FCNR deposits
With increases in interest rates, FCNR(B) deposits look much more attractive
FCNR deposits are denominated in designated foreign currencies
These are currencies such as US Dollar, GBP and Japanese Yen
Depreciation of the rupee or any fall in the value of the Rupee will not impact the investment
Interest income from FCNR deposits is tax-free in India since it is an external account
FCNR(B) deposits were made attractive in 2013
The Rupee was under pressure due to "Fed Taper Tantrum" due to withdrawal of accomodative monetary policy by US Federal Reserve
FCNR deposit interest rates are now in the region of 2.85-3.25%
FCNR deposit interest rates will depend on the term or tenure and the amount of the deposit
For SBI, one year FCNR US Dollar deposit is 2.85%
3% is for less than two years and 3.1% for 3-4 years
These rates were hovering around 2.3-2.5%
FCNR interest rates have gone up by 0.6-1.0 percentage points
You are likely to find higher rates in other banks
In ICICI Bank, the threshold is $350,000
It is 2.5% for less than $350,000
You get 3.35% for 12-24 months
For NRIs to invest in FCNR, much depends on the prevailing deposit interest rates in their country of residence
New FCNR rates compare very favourably to rates existing in many countries
This includes rates in the US and UAE
RBI is expected to increase interest rates to control inflation
Since interest rates are rising globally, FCNR rates might need a hike to stay attractive