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The Reserve Bank on Friday announced a raise in the interest rate caps on the diaspora’s foreign currency deposits, in a move aimed at attracting more capital flows amid pressures on the rupee.

Announcing the fifth bi-monthly monetary policy for the current financial year, RBI Governor Shaktikanta Das said it has been decided to increase the interest rate ceilings on Foreign Currency Non-Resident Bank deposits or FCNR (B) deposits according to tenors.

It can be noted that the move comes at a time when the rupee has been hitting lifetime lows against the dollar, and the Reserve Bank of India (RBI) seems to be deploying forex reserves to contain the volatilities, as seen in the sharp fall in the kitty over the last few weeks.

Starting from Friday, banks have been now permitted to raise fresh FCNR (B) deposits of 1 year to less than 3 years maturity at rates not exceeding Overnight Alternative Reference Rate (ARR) plus 400 basis points, as against 250 basis points earlier.

Similarly, deposits with maturity between 3 to 5 years can be paid an interest of ARR plus 500 basis points, as against the 350 basis points ceiling earlier, Das said.

The relaxation will be available only till March 31 next year, he said.

It can be noted that India, which is the largest beneficiary of remittances in the world, has introduced sweeter deals to NRI deposits in the past episodes of rupee coming under pressure.

Das said the rupee has depreciated by 1.3% mainly on strengthening of the US dollar and selling pressure from foreign portfolio investors in October and November, and added that the volatility was less when compared to peer emerging markets.

Stressing that the RBI’s exchange rate policy has been consistent to let the markets determine the levels, Das said foreign exchange reserves are used judiciously to mitigate undue volatility, maintain market confidence and preserve overall financial stability.

Meanwhile, the Governor also announced an expansion in the reach of the Forex-Retail platform through linkages with Bharat Connect on Friday.

Das said with the objective of bringing greater transparency and fairness in the pricing of foreign exchange for users, especially for individuals and Micro, Small and Medium Enterprises, the Clearing Corporation of India Limited (CCIL) launched the FX-Retail platform in 2019.

Presently, the FX-Retail platform is accessible through an internet-based application, he said, adding that it is proposed to facilitate the linking of the FX-Retail platform with Bharat Connect (earlier known as Bharat Bill Payment System) operated by the NPCI Bharat Connect.