Indian banks have raised foreign-currency deposit rates to attract capital from overseas residents, responding to recent regulatory changes by the Reserve Bank of India (RBI) [1, 2, 3, 4]. Yes Bank Ltd and AU Small Finance Bank now offer about 7.1% interest on five-year foreign currency deposits to non-residents, the highest among lenders [2, 3, 4]. Meanwhile, larger banks such as HDFC Bank Ltd and Central Bank of India are offering up to 6% on similar tenure deposits [2, 3, 4].
The RBI announced new measures from June 3 to June 10 that give banks more flexibility to set attractive foreign currency deposit rates while managing funding costs [2, 3, 4]. These steps aim to boost foreign capital inflows to support the Indian rupee, which has faced pressure due to elevated oil prices and trade balance concerns [2, 4].
Economist Madhavi Arora of Emkay Global Financial Services noted that "Larger, well-established banks already benefit from a sizeable NRI (non-resident external) deposit base and, therefore, face less pressure to raise rates aggressively. In contrast, smaller banks need to attract and build a new NRI customer base, requiring them to offer a higher yield premium to remain competitive" [2]. This explains why smaller lenders like Yes Bank and AU Small Finance Bank have raised their rates above those of bigger banks.
The current approach mirrors the RBI's 2013 playbook during the taper tantrum episode when similar measures attracted about $34 billion in foreign capital to stabilize India's external position [2, 4]. In addition, some Indian banks have sought RBI permission to help individuals access loans from overseas banks as part of new plans to increase foreign capital [1].
The recent rate hikes and RBI regulatory support represent a coordinated effort to lure more foreign currency deposits and shore up external funding amid challenging economic headwinds. Indian lenders will continue to adjust offers to non-resident investors as the government and RBI monitor capital flows in the coming weeks [1, 2, 3, 4].
