RBI frees interest rates on non-resident deposits
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The Reserve Bank of India (RBI) on Friday deregulated interest rates on non-resident external rupee deposits and ordinary non-resident accounts to provide greater flexibility to banks in mobilising such deposits amid current market conditions.
The RBI's move could bolster capital inflows into the country and aid the battered rupee, dealers said.
Banks are free to determine interest rates on both savings deposits and term deposits, of maturity of one year and above, under NRE rupee deposit accounts and savings deposits under NRO accounts with immediate effect, the Reserve Bank of India said in a notification after market hours.
"Given the current interest rate differentials between India and the developed world, and the relatively high strength of the dollar against the rupee, this should attract investments from non-resident Indians," said Ananth Narayan G., head of fixed income, currencies and commodities at Standard Chartered Bank.
"It will help banks with an additional liquidity source, besides providing support to the Indian rupee."
The partially-convertible rupee ended at 52.70/72 per dollar from 53.65 on Thursday when it had touched a record low of 54.30.
The revised deposit rates will apply only to fresh deposits and on renewal of maturing deposits and such rates cannot be higher than those offered on comparable domestic rupee deposits, the notification said.
On November 23, the RBI had raised the interest rate ceiling on NRE rupee deposits and the foreign currency non-resident banks (FCNRB) deposits citing market conditions.
So far this year, foreign investors have been net sellers of $352.5 million worth of Indian shares against a record inflow of more than $29 billion in 2010.
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