Many Indian banks have increased the rate of interest offered on Foreign Currency Non-Resident (FCNR) and non-Resident External (NRE) (Rupee) accounts.

RBI had recently raised the interest rate ceiling on FCNR and NRE deposits by 0.75%.

State Bank of India (SBI)

SBI has increased the rate effective Monday, 17th Nov 2008.

For NRE (Rupee) deposits having a duration between 1 year and 2 years, the rate has been increased from 4.17% to 4.92%.

For a tenure ranging from 2 years to 3 years and 3 years to 5 years, the rate has been hiked from 3.66% to 4.41% and from 4.14% to 4.89% respectively.

For FCNR deposits (US dollar denominated) having a duration between 1 year and 2 years, the rate of interest has been hiked from 3.42% to 4.17%. The rate for deposits of 2 to 3 years has been increased from 2.91% to 3.66%.

The new rate for deposits having a duration of 3 to 4 years, 4 to 5 years and above 5 years is 4.14%, 4.49% and 4.76% respectively.

ICICI Bank

ICICI Bank has increased the interest rates on FCNR and NRE deposits with effect from 18th November 2008.

NRE Deposits: The rate for 1 year deposit has been increased to 4.92%.

FCNR (US Dollar USD): The rate for 1 year deposit has been increased to 4.17%.

FCNR (British Pound GBP): The rate for 1 year deposit has been increased to 7.01%.

Punjab National Bank (PNB)

PNB has increased the interest rate for FCNR and NRE deposits by 0.75%.

State Bank of Patiala (SBP)

SBP has increased the interest rate for FCNR and NRE deposits by 0.75%.

Other banks

Most other banks in India are expected to follow suit, and increase the interest rates on FCNR and NRE deposits by 0.75%.

The rationale

The interest rates in India have started declining (Please see “Banks in India start cutting lending and deposit rates”)

Then, why are the rates on NRI / PIO deposits being increased?

This hike in interest rates is primarily to attract more foreign exchange into the country, at a time when many foreign investors (primarily FIIs) are taking their dollars out of India.

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