Karur Vysya Bank - raises FCNR deposit rates, offers up to 7% p.a. on US dollar deposits

Karur Vysya Bank (KVB) has significantly increased its interest rates on Foreign Currency Non-Resident (B) (FCNR-B) deposits denominated in US dollars, offering up to 7% per annum for maturities in the 3–5 year range. This marks a sharp increase from the previous rate of 2.63% and aligns with broader industry trends driven by regulatory support from the RBI.

The RBI has introduced measures to encourage dollar inflows, including absorbing hedging costs for fresh FCNR-B deposits in the 3–5 year tenor and providing regulatory relaxations such as exemptions from statutory reserve requirements. These steps have reduced the cost burden on banks, enabling them to offer higher returns without significantly impacting their margins.

KVB’s move reflects intensified competition among banks to attract Non-Resident Indian (NRI) deposits, particularly in the 3–5 year maturity segment. Other major lenders, including Tamilnad Mercantile Bank (TMB) and AU Small Finance Bank, have also raised their FCNR-B rates to 7% and 7.10%, respectively.

Experts suggest that the combination of hedging cost support and regulatory incentives has improved pricing flexibility for banks, potentially leading to stronger dollar inflows. SBI economists estimate that FCNR-B inflows could reach $40–45 billion, supported by the attractive yield differential and regulatory environment.

The increased rates are expected to benefit NRIs through higher returns, while also supporting banks in strengthening their deposit base amid robust credit growth. For the RBI, the policy is seen as a tool to stabilize foreign exchange flows and manage external inflows more effectively.