Karur Vysya Bank raises FCNR deposit rates up to 7%

Karur Vysya Bank (KVB) has significantly increased its interest rates on Foreign Currency Non-Resident (FCNR) deposits, with rates for 3–5 year maturities now reaching 7%, up from 2.63% previously. This move aligns with broader industry trends, as major banks raised FCNR (B) rates in response to regulatory measures by the Reserve Bank of India (RBI) aimed at boosting dollar inflows.

The RBI has introduced supportive policies, including absorbing full hedging cost for fresh FCNR (B) deposits in the 3–5 year tenor and offering regulatory relaxations such as exemptions from statutory reserve requirements. These measures have effectively reduced the cost burden on banks, enabling them to offer higher returns without significantly eroding profit margins.

FCNR deposits allow Non-Resident Indians (NRIs) to invest in foreign currencies such as USD, GBP, EUR, JPY, AUD, and CAD, with interest payments made in the same currency. The deposits offer flexible tenors ranging from 1 to 5 years and provide tax-free returns in India. Additionally, NRIs can opt for forward contracts to convert maturity proceeds into INR at a pre-determined exchange rate, mitigating currency fluctuation risks.

The increased rates are expected to attract stronger inflows from NRIs, particularly in the 3–5 year maturity segment, where competition among banks is intensifying. Market analysts suggest that the combination of regulatory support and attractive yields could lead to substantial dollar inflows, potentially reaching $40–45 billion, according to estimates by SBI economists.