Commercial banks have sought approval from the Reserve Bank of India (RBI) to permit existing NRI customers to prematurely withdraw and rebook deposits to make the best of the time-bound FCNR deposit scheme.

The FCNR deposit scheme, subject to certain conditions, offers almost double the returns of regular term deposits.

Banks are offering 6% to 7.1% for three- to five-year deposits under the special scheme. Earlier, it was 3.35% to 4% only.

Therefore, large depositors are directing their banks to prematurely close term deposits and in turn redeploying their funds in other banks.

This sudden trend is a cause of concern to bankers, who see their prime depositors moving to other banks.

In accordance with RBI rules, banks are giving away the entire benefit to depositors, making the scheme even more attractive. But the incentive is applicable only to fresh and matured deposits. Existing deposits will earn lower rates only. This means those who have created deposits in the last two or three months do not stand to gain, and they would be the ones to miss out on better returns.

Still, depositors who placed funds in the last three months are ready to forgo interest income and move on as bankers do not have the right to stop depositors from prematurely withdrawing funds, while foregoing interest. – editor@nrifocus.com