Interest rate ceilings on FCNR (B) deposits have been increased by RBI

Current Context: On December 6, 2024, the Reserve Bank of India (RBI) announced an increase in the interest rate ceilings for Foreign Currency Non-Resident (Banks) [FCNR (B)] deposits.

• This move is aimed at attracting more foreign currency deposits into Indian banks. 
• Here's how it works:
• New Interest Rate Ceilings:
• For deposits of 1-3 years, the new ceiling is the Overnight Alternative Reference Rate (ARR) plus 400 basis points.
• For deposits of 3-5 years, it is ARR plus 500 basis points.
• Effective Period: These revised interest rate ceilings are effective until March 31, 2025.
• Purpose: The increase in ceilings aims to encourage more NRIs to deposit their foreign currency earnings in Indian banks, thus boosting the country's foreign exchange reserves.

Question:

1 What is the new interest rate ceiling for Foreign Currency Non-Resident (Banks) [FCNR (B)] deposits of 1-3 years, as announced by the RBI on December 6, 2024?

• A) ARR + 300 basis points
• B) ARR + 400 basis points
• C) ARR + 500 basis points
• D) ARR + 600 basis points

Answer: B) The RBI has set the new ceiling for FCNR (B) deposits of 1-3 years at the Overnight Alternative Reference Rate (ARR) plus 400 basis points to attract more foreign currency deposits.