RBI cuts forex deposit rates by 25-50 bps

The Reserve Bank of India on Wednesday reduced the deposit rates of NR(E) RA and FCNR (B) deposit rates by 50 basis points and 25 basis points, respectively.

The central bank, in its third quarter review of monetary policy today, said, "A sizeable increase in non-resident (external) rupee account (NR(E)RA) and Foreign Currency Non-Resident (Banks) (FCNR(B)) deposits has been observed in 2006-07 so far. At the same time, there are reports of large growth in advances being granted against such deposits. It may be recalled that, based on the prevailing monetary conditions, the interest rate ceilings on NR(E)RA and FCNR(B) deposits have been reviewed on an ongoing basis and have been adjusted on several occasions. In the current context, it has been decided to reduce the interest rate ceilings on NR(E)RA and FCNR(B) deposits by 50 basis points and 25 basis points, respectively."

"Furthermore, keeping in view the objective of making these facilities available to individual NRIs and considering the prevailing monetary conditions, there is merit in avoiding upward pressure on asset prices in sensitive sectors through utilisation of this facility. Pending a review of the extent of large advances to high net worth individuals, banks are being prohibited from granting fresh loans in excess of Rs 20 lakh against the NR(E)RA and FCNR(B) deposits either to depositors or to third parties. Banks are also being advised not to undertake artificial slicing of the loan amount to circumvent the ceiling."

The Monetary and Credit Policy 2006-2007