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SBI increased already. I got an email
CURRENCY USD GBP EURO CAD AUD
PERIOD OF THE DEPOSIT RATE YIELD* RATE YIELD* RATE YIELD* RATE YIELD* RATE YIELD*
1 year to less than 2 years 2.67 2.76 2.87 2.98 2.48 2.56 3.37 3.51 4.51 4.73
2 years to less than 3 years 2.57 2.69 2.84 2.99 2.64 2.77 3.56 3.77 4.76 5.13
3 years to less than 4 years 3.95 4.30 4.13 4.51 3.87 4.20 4.83 5.33 6.07 6.87
4 years to less than 5 years 4.38 4.92 4.45 5.00 4.13 4.60 5.11 5.83 6.39 7.52
5 years 4.77 5.40 4.73 5.35 4.36 4.89 5.34 6.13 6.63 7.84

There is still currency risk to these deposits.

When these banks receive your USD they are not going to hide them away in a vault for you to access whenever you need them. They are going to convert them into INR and loan the money out as a fractional reserve for houses, cars, capital equipment, etc.

So while they may not be converted to Rupee in your account statement, they will definitely be converted on the bank's balance sheet.

The bank experiences currency risk because its assets(loans, reserves) are denominated in Rupee and its liabilities(time deposits) are denominated in US Dollars. As the Rupee loses value the bank won't be able to come up with the dollars to repay you, particularly with the high interest rates they are offering. Capital restrictions placed by India's government could also make it difficult or impossible for them to come up with US dollars.

brett- these are foreign currency denominated deposits.  Cross currency swaps convet the $s to rupees now and back to $'s at maturity. Thus hedging the banks fx risk.  RBI is subsidizing the cost of doing a cross currency swap for banks effectively reducing their cost.  

In short there is no fx risk for banks or consumers.  There is a transfer of cost from category of subsidies to another.

drd2501 said:   brett- these are foreign currency denominated deposits.  Cross currency swaps convet the $s to rupees now and back to $'s at maturity. Thus hedging the banks fx risk.  RBI is subsidizing the cost of doing a cross currency swap for banks effectively reducing their cost.  

In short there is no fx risk for banks or consumers.  There is a transfer of cost from category of subsidies to another.

  

If that is the case there is counter-party risk to the bank and whoever is writing the currency swap.

Also, as more "hot money" flows to these banks the costs of subsidizing the swap contracts will grow to the point where the subsidizes won't be sustainable.

brettdoyle said:   
drd2501 said:   brett- these are foreign currency denominated deposits.  Cross currency swaps convet the $s to rupees now and back to $'s at maturity. Thus hedging the banks fx risk.  RBI is subsidizing the cost of doing a cross currency swap for banks effectively reducing their cost.  

In short there is no fx risk for banks or consumers.  There is a transfer of cost from category of subsidies to another.

  

If that is the case there is counter-party risk to the bank and whoever is writing the currency swap.

Also, as more "hot money" flows to these banks the costs of subsidizing the swap contracts will grow to the point where the subsidizes won't be sustainable.

  
The counter-party here is the RBI - the central banking institution of India. The chance of default or the risk level is very low.

From the investor perspective does anyone feel that FCNR Fixed Deposit Accounts is risky? I understand that it may not insured to the level we have been used to by FDIC.

brettdoyle said:   
drd2501 said:   brett- these are foreign currency denominated deposits.  Cross currency swaps convet the $s to rupees now and back to $'s at maturity. Thus hedging the banks fx risk.  RBI is subsidizing the cost of doing a cross currency swap for banks effectively reducing their cost.  

In short there is no fx risk for banks or consumers.  There is a transfer of cost from category of subsidies to another.

  

If that is the case there is counter-party risk to the bank and whoever is writing the currency swap.

Also, as more "hot money" flows to these banks the costs of subsidizing the swap contracts will grow to the point where the subsidizes won't be sustainable.

  counterparty risk is typically managed by collateralization as required by the ISDA agreement.  It is the same risk for an Indian bank as an American bank. 

The whole point of the game is to replace one source of "hot money" with another.  In the long run, economic growth is the panacea for the ills faced by any economy.  Monetary policy is a short term fix and cannot be a substitute for good governance.  Same principle applies to the US economy and QE.  

Veeekay said:   
 

From the investor perspective does anyone feel that FCNR Fixed Deposit Accounts is risky? I understand that it may not insured to the level we have been used to by FDIC.

  
Depends on the bank.  Look at it just like buying stocks.  Only thing that is different is that you have a priority in your claims.  

As a principle, you wont go wrong with PSU banks. Flip side - They are not aggressive with pricing.  

Investing in India is a gamble in itself , unless you have time and money to travel back and forth stay way 

drd2501 said:   brett- these are foreign currency denominated deposits.  Cross currency swaps convet the $s to rupees now and back to $'s at maturity. Thus hedging the banks fx risk.  RBI is subsidizing the cost of doing a cross currency swap for banks effectively reducing their cost.  

In short there is no fx risk for banks or consumers.  There is a transfer of cost from category of subsidies to another.

  so, do they charge conversion fee twice? That alone would be 2%. 

no conversion involved for the deposits quoted by OP.  They are denominated in the FX that you choose.  Just to clarify; heres how things work in real life

You deposit in $'s -> Bank issues FD in $'s-> Banks do currency swaps with FX market participants (sell $s to convert into INR and simultaneously agree to buy it back at a predetermined rate at the maturity date) NO impact on you. for you it is seamless -> On Maturity bank gets $'s from swap and gives it back to you.

The breaking news is that RBI is subsidizing the banks cost of entering into a swap by as much as 3.5%.  As a result the banks should be able to pass this onto you in terms of higher interest rates. This helps RBI to support the exchange rates by giving preferential treatment to NRIs.  Kind of like the fed providing cross currency swaps at a discounted rate during the euro/Greece crisis

HTH

phatwalletguy said:   Investing in India is a gamble in itself , unless you have time and money to travel back and forth stay way 
  This I agree with wholeheartedly!  The paperwork is enough to give you a stroke. 

Anecdotal evidence :-  When I tried to open an NRI account with ICICI last year they asked me for residence proof.  Provided them a utility bill with address and all.  They wanted not just the first page with the address on it but all 33 pages of disclosures that PG&E had for that billing cycle.  Once I printed that out and went back they wanted me to self certify it.  Since the signature on the self certification was different they wanted me to Notarize the document.

At that point I did what any Indian would do.  Went into HDFC next door and opened a normal account.  Cashed the check and closed the account. 

I bank with Kotak. Never had any customer issues. They have a nice portal where it allows you to open a term deposit online. Pay Bills in India, transfer money. The FCNR rates look good. They are not taxed in India and held in dollars, therefore not subject to exchange fluctuations. NRE account is also not taxed but the problem is that the $ is converted to rupees, therefore subject to currency risk.

Thanks for the explaination drd.

I don't see banks increasing rates that much. RBI has capped it to 5 year swap + 400 basis points till Nov. 30. The rate has gone up a bit on Sep. 1. Most banks have this rate now but some prominent ones like HDFC, SBI are still using the old formula of swap + 300 basis points which results in their rate being 1% less. With the new governor taking charge, inflows of $10 billion are expected in the next three months. However, opening a new account with any of the Public Sector Banks from US is non-trivial with all the forms involved. Anybody have any good recent experience?
FCNR Deposit rates w.e.f. 01-09-2013
 
(PERCENTAGE PER ANNUM)
  MATURITY USD GBP EURO JPY CAN$ AUS$
A 1 YR TO LESS THAN 2 YRS 2.67 2.87 2.48 2.41 3.37 4.51
B 2 YRS TO LESS THAN 3 YRS 2.57 2.84 2.64 2.27 3.56 4.76
C 3 YRS TO LESS THAN 4 YRS 4.95 5.13 4.87 4.31 5.83 7.07
D 4 YRS TO LESS THAN 5 YRS 5.38 5.45 5.13 4.36 6.11 7.39
E 5 YRS (Maximum) 5.77 5.73 5.36 4.45 6.34 7.63

 


dees said:   With the new governor taking charge, inflows of $10 billion are expected in the next three months. However, opening a new account with any of the Public Sector Banks from US is non-trivial with all the forms involved. Anybody have any good recent experience?

FCNR Deposit rates w.e.f. 01-09-2013
 
 
(PERCENTAGE PER ANNUM)
  MATURITY USD GBP EURO JPY CAN$ AUS$
A 1 YR TO LESS THAN 2 YRS 2.67 2.87 2.48 2.41 3.37 4.51
B 2 YRS TO LESS THAN 3 YRS 2.57 2.84 2.64 2.27 3.56 4.76
C 3 YRS TO LESS THAN 4 YRS 4.95 5.13 4.87 4.31 5.83 7.07
D 4 YRS TO LESS THAN 5 YRS 5.38 5.45 5.13 4.36 6.11 7.39
E 5 YRS (Maximum) 5.77 5.73 5.36 4.45 6.34 7.63

 


  Total FCNR deposits before the announcement were $15 BN.  Most of the media reports are speculations not based on historical data.  A quick unscientific poll of your immediate friends and family will show that there are no large incremental FCNR deposits happening.

Subsidizing the bank will not translate into inflows unless the banks pass on the savings to depositors.

http://timesofindia.indiatimes.com/business/india-business/Forei...  

Personally, i feel the 18 to 21% return stated in the article is incorrect. Will know more only after seeing the product details.

edit to add more details:  

Most US based banks are not offering this due to country exposure issues AT THIS TIME.  Like all good bankers they will find a way to circumvent it.

I have used www.simplyglobal.com for comparing different types of fixed deposits from India. The interesting thing is that they allow you to select an exchange that you can assume at the time when the term will end so that you can see the real impact on the returns of the variation in exchange rates. I haven't asked any questions on their website but looks like they have a section on their website called community. Currently most of the questions so far are taxation related though and have been answered by CPAs from US and CAs from India.

I have used www.simplyglobal.com for comparing different types of fixed deposits from India. The interesting thing is that they allow you to select an exchange that you can assume at the time when the term will end so that you can see the real impact on the returns of the variation in exchange rates. I haven't asked any questions on their website but looks like they have a section on their website called community. Currently most of the questions so far are taxation related though and have been answered by CPAs from US and CAs from India.

has anyone successfully done the 18-20% leveraged fcnr (b) accounts from the US? i'm hearing that some people have done it from singapore. some details here Text

For preserving the money in dollars, and getting the better interest( more than 6% p.a), can we do it online or are there any physical banks in US which do that?



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