HDFC Bank, ICICI Bank: Banking stocks in focus as RBI lifts interest rate cap on select NRI deposits

Banking stocks such as HDFC Bank, ICICI Bank, among others, are expected to be on investors’ radar on Thursday, June 18, as the Reserve Bank of India (RBI) on Wednesday temporarily withdrew interest rate ceiling on fresh Foreign Currency Non-Resident (Bank) deposits of 3-5 years’ maturity till September 30, 2026, a move aimed at attracting foreign capital.

The apex bank has also temporarily withdrawn restrictions on interest rates on Non-Resident External (NRE) deposits of 3 years and above tenors, including deposits that are renewed upon maturity, till September 30, 2026.

“The interest rate ceiling applicable to fresh FCNR(B) deposits mobilised by banks, including the deposits that are renewed upon maturity, for three years and above – up to and including five-year tenors, is temporarily withdrawn with effect from June 17, 2026, for the period until September 30, 2026,” the central bank said in a circular.

The relaxation came into effect from Wednesday.

An FCNR (B) deposit is a term deposit account meant for Non-Resident Indians (NRIs) to park overseas earnings in foreign currencies in India.

The notification also said interest rates on NRE/NRO deposits should not be higher than those offered by the bank on comparable domestic rupee term deposits. This means that banks cannot offer NRIs significantly higher returns than those available to resident depositors.

What you need to know

The RBI’s latest move is being viewed as a positive development for banks, particularly those with a strong NRI deposit franchise, although the benefits are likely to be indirect and may not immediately translate into higher earnings.

What has the RBI done?

The central bank has temporarily removed the upper limit on interest rates that banks can offer on:

• Fresh FCNR(B) deposits with maturities of three to five years
• NRE deposits with tenors of three years and above

The relaxation will remain in effect until September 30, 2026.

In simple terms, banks can now offer higher interest rates to NRIs to attract more foreign currency and NRI deposits, say experts.

Why has the RBI taken this step?

The primary objective is to attract additional foreign capital into India.

• Foreign currency flows into the country.
• Banks gain access to additional funding.
• India’s foreign exchange reserves receive support.
• Pressure on the rupee can ease during periods of global volatility.

The move is similar to measures adopted by the RBI in the past to encourage foreign inflows and strengthen external-sector stability, note analysts.

Why will banking stocks be in focus?

Investors are likely to watch banking stocks closely as lenders now have greater flexibility to mobilise funds from NRIs.

Banks with large overseas customer bases and established NRI banking franchises could benefit the most. These include State Bank of India, ICICI Bank, HDFC Bank, Axis Bank, and IndusInd Bank.

The relaxation could help these lenders attract deposits more effectively, strengthen their funding base, and improve liquidity.