FCNR(B) Deposits: Interest Rates

About Kapil Kathpal

• Kapil Kathpal has 12 years of banking experience in a Public Sector Bank, with experience in Credit, Risk Management, and General Banking.
• Kathpal has cracked SBI PO, IBPS PO & UPSC Civil Services Mains Exams.
• Kathpal is a Chartered Financial Analyst (CFA), with a Post Graduate degree in Accounting, JAIIB & CAIIB, and a Diploma in Treasury Investment & Risk Management.
• Kathpal has been teaching for Competitive Exams for PSU Banks since 2017.
• Kathpal specializes in teaching Current Affairs, Banking Awareness, JAIIB/DBF (All Subjects), RBI Grade B (Phase-2 All Subjects), and Interview Preparation.

Interest Rates on Foreign Currency (Non-resident) Accounts (Banks) [FCNR(B)] Deposits

• Applies to All Scheduled Commercial Banks (including Regional Rural Banks), All Small Finance Banks, All Local Area Banks, All Payments Banks, All Primary (Urban) Co-operative Banks/ DCCBs /State Cooperative Banks.
• The decision has been made to increase the interest rates ceiling on fresh FCNR(B) deposits raised by the banks with effect from December 06, 2024.
• For deposits of 1 year to less than 3 years, the ceiling rate is Overnight Alternative Reference Rate for the respective currency plus 400 basis points.
• For deposits of 3 years and above up to and including 5 years, the ceiling rate is Overnight Alternative Reference Rate for the respective currency plus 500 basis points.
• The above relaxation is available till March 31, 2025.

Foreign Currency Non-Resident (FCNR)

• An FCNR is a bank account for NRIs to maintain a Fixed Deposit account in India.
• FCNR allows NRIs to save money earned in the currency they originally earned it in.
• An FCNR account is a foreign currency denominated account where non-resident Indians or a person of Indian origin (PIO) can maintain an account.
• Interest on such deposits is exempt from income tax.
• FCNR accounts can only be opened for a tenure of 1-5 years.
• If withdrawn before a year is complete, interest will not be credited.
• Currencies include: US Dollar (USD), Pound Sterling (GBP), Euro (EUR), Australian Dollar (AUD), Canadian Dollar (CAD), and Japanese Yen (JPY).

Secured Overnight Financing Rate (SOFR)

• SOFR is the benchmark for interest rates on dollar-denominated loans and derivatives.
• It replaced the London Intrabank Offered Rate in 2023.
• Overnight Rate is closely related to banking operations and liquidity issues.
• The New York Fed releases SOFR daily, and it was first published in April 2018.

Introduction of the Secured Overnight Rupee Rate (SORR)

• The Reserve Bank had set up the Committee on the MIBOR Benchmark (Chairperson: (Shri Ramanathan Subramanian)) to review the Rupee interest rate benchmarks in the country.
• Committee recommended several measures to further develop the interest rate derivative market and improve the credibility of interest rate benchmarks.
• Financial Benchmarks India Limited (FBIL) is being requested to take the proposal forward.

Inoperative Accounts / Unclaimed Deposits in Banks

• Banks must undertake annual review of accounts where there are no customer-induced transactions for more than a year.
• Banks needs to segregate accounts opened for credit of scholarship/DBT/EBT under Government Schemes to facilitate credit of DBTs even if such accounts have become inoperative.
• Banks need to take steps to trace the customers of inoperative accounts/ deposits and information on the process for activation to be displayed on banks' websites and branches.
• There is a high number of inoperative accounts/ unclaimed deposits in several banks. The reasons were attributed to either inactivity for a long time or pending updation/ periodic updation of KYC in such accounts.

Government Debt Relief Schemes (DRS)

• The Prudential Framework for Resolution of Stressed Assets dated June 7, 2019, read with the Framework for Compromise Settlements and Technical Write-offs dated June 08, 2023, provides a resolution framework for regulated entities (REs) for addressing stress in borrower accounts.
• Specific frameworks exist for REs to restructure exposures affected by natural calamities.
• Some REs implement Debt Relief Schemes (DRS) announced by State Governments, involving sacrifice/waiver of debt obligations of targeted borrowers, against fiscal support.
• Frequent or disproportionate DRS without considering financial discipline negatively affect credit discipline and may be counter-productive to credit flow.
• DRS can cause delays in dues receipt, create a mismatch between claims submitted/accepted, and mandate fresh credit by the REs.
• In respect of relief measures announced prior to these guidelines, any dues pending receipt from Government, for more than 90 days shall attract specific provision of 100%.

Credit Flow to Agriculture – Collateral free agricultural loans

• Applies to All Scheduled Commercial Banks (including Regional Rural Banks and Small Finance Banks)All State Co-operative Banks and District Central Co-operative Banks.
• Agricultural loans are collateral free loans including loans for allied activities from the existing level of 1.6 lakh to 2 lakh per borrower.
• Banks are advised to waive collateral security and margin requirements for agricultural loans including loans for allied activities up to 2 lakh per borrower.
• The banks are advised to give effect to the revised instructions expeditiously and in any case not later than January 1, 2025.

Maintenance of Cash Reserve Ratio (CRR)

• The Cash Reserve Ratio (CRR) of all banks have been reduced by 50 basis points in two equal tranches of 25 basis points each to 4.0 per cent of net demand and time liabilities (NDTL).
• Banks are required to maintain the CRR at 4.25 per cent of their NDTL effective from the reporting fortnight beginning December 14, 2024 and 4.00 per cent of their NDTL effective from fortnight beginning December 28, 2024.

Amendment to Framework for Facilitating Small Value Digital Payments in Offline Mode

• The RBI updated the Offline framework with enhanced limits for UPI Lite.
• The enhanced limits for UPI Lite are ₹1,000 per transaction, with ₹5,000 being the total limit at any point in time.
• This circular is issued under Section 18 read with Section 10 (2) of the Payment and Settlement Systems Act, 2007 (Act 51 of 2007), and shall come into effect immediately.

Expanding reach of FX-Retail Platform through linkages with Bharat Connect

• To expand the reach of the FX-Retail platform and enhance user experience, it is proposed to facilitate the linking of the FX-Retail platform with Bharat Connect
• The linkage will enable users to register and transact on the FX-Retail platform through the apps of banks (mobile applications, internet banking etc.) and non-bank payment system providers, which are integrated with Bharat Connect.

'Connect 2 Regulate' – An Initiative for Open Regulation

• Reserve Bank proposes to launch a programme named 'Connect 2 Regulate' under the ongoing RBI@90/commemorative events.
• A dedicated section in the Reserve Bank's website will be made available for the programme.
• This shall provide an opportunity to the stakeholders to share their ideas and inputs in the form of case studies/ concept notes, etc. on the topics announced by the Reserve Bank from time to time.

Introduction of Podcast facility as an additional medium of communication

• The Reserve Bank of India is introducing podcasts for wider dissemination of information of interest to the general public.

Pre-sanctioned Credit Lines through UPI – Extending the scope to SFBs

• SFBs will be premitted to extend credit lines through the UPI.

Al solutions to identify mule bank accounts - MuleHunter.AITM

• RBI is piloting MuleHunter.AITM, an Al / ML based model by Reserve Bank Innovation Hub (RBIH), a subsidiary of Reserve Bank.
• MuleHunter.AITM enables detection of mule bank accounts in an efficient manner.

Reporting Platform for transactions undertaken to hedge price risk of gold

• Banks shall report all over-the-counter (OTC) transactions in gold derivatives.
• Banks shall report all OTC transactions in gold derivatives undertaken by their eligible customers / constituents in domestic markets and IFSC to the TR with effect from February 01, 2025.
• Banks shall report all the aforesaid transactions undertaken by them or their eligible customers / constituents to the TR before 12:00 noon of the following business day.

SEBI Announced Interoperability for Stock Exchanges from 1st April 2025

• SEBI issued a circular under Section (11) of the SEBI Act, 1992, which empowers the SEBI to protect investor interests, regulate the securities market, and promote its development.
• SEBI has outlined a comprehensive Business Continuity Plan (BCP) for interoperability of stock exchanges and clearing corporations to address the issue of trading outages or glitches. For cash, derivatives, and interest rate derivatives will come into effect from April 1, 2025.
• SEBI has mandated the National Stock Exchange (NSE) and Bombay Stock Exchange (BSE) to act as a backup to each other in case of any trading outage.

SEBI Announced Expansion of T+0 Settlement Cycle for Top 500 Stocks

• SEBI issued a circular in exercise of powers given under Section (11) of the SEBI Act, 1992, read with Regulation 51 of the Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) Regulations, 2018 which empowers the SEBI to protect investor interests, regulate the securities market, and promote its development.
• the Securities and Exchange Board of India (SEBI) has decided to expand the scope of optional T+0 rolling settlement cycle in the equity cash market.
• As per SEBI's directions, optional T+0 settlement cycle will be made available to top 500 scrips in terms of market capitalization as on December 31, 2024.
• All the provisions related to the availability of eligible scrips will come into effect January 31, 2025, while provisions related to Qualified Stock Brokers (QSBs), custodians and block window mechanism will be applicable from May 1 2025.

SEBI Mandated MF Companies to Process Cancellations of SIP in 2 Days

• SEBI mandated all Mutual Fund (MF) companies to reduce the processing time for cancelling their Systematic Investment Plans (SIPs) to 2 working days from the previous 10 working days.
• According to the new norms, it is now mandatory for all Asset Management Companies (AMCs) to adhere to the two-day time frame for the cancellation of SIP, irrespective of whether SIP was registered online or offline.