HDFC Bank has raised interest rates on 3-5 year dollar deposits to 6.25% ahead of the RBI’s special swap window closure. The move helps the bank attract foreign currency liquidity, joining other lenders who are competing to build reserves before the September deadline.
HDFC Bank has increased the interest rate on its three- to five-year Foreign Currency Non-Resident (Bank) dollar deposits to 6.25%. This adjustment, which took effect on August 1, 2026, represents a 25 basis point hike from the previous 6% offering. The strategy is designed to capture non-resident inflows as the Reserve Bank of India’s concessional swap facility approaches its conclusion at the end of September.
Competition for Foreign Currency
The banking sector is witnessing a race to attract foreign currency as the central bank’s swap window enters its final two months. Because these deposits are a key source of foreign currency for banks, major private sector peers are also active. ICICI Bank and Axis Bank are currently offering 6% on similar dollar-denominated FCNR(B) deposits. Meanwhile, the State Bank of India has set its five-year FCNR(B) rate at 6% for deposits exceeding $1 million.
Smaller lenders are offering higher rates to gain market share. AU Small Finance Bank recently increased its peak rate on FCNR(B) deposits to 7.4% for three- to four-year tenors, while also raising rates on non-resident external fixed deposits to 7.6% for specific maturities.
Why Banks Are Pushing for Deposits
Banks are motivated by the RBI's concessional swap facility, which has been highly successful in managing foreign currency liquidity. As of July 31, 2026, the industry had collectively brought in approximately $41 billion in foreign currency under this initiative. Of this total, $36.7 billion came from FCNR(B) deposits, while the remainder comprised overseas borrowings and external commercial borrowings. This mobilization effort has already exceeded the $34 billion collected during the central bank's similar swap scheme in 2013.
For investors, the key monitorable is the impact of these higher deposit rates on the bank's net interest margin. While these deposits provide stable foreign currency liquidity, they come at a higher cost compared to standard domestic savings accounts. Shareholders should track the bank’s ability to deploy these funds effectively and whether the increased cost of deposits affects profitability in the upcoming quarterly results. The industry's activity is expected to remain high until the swap window closes, as banks look to secure long-term foreign currency resources at competitive rates.