HDFC Bank has invited deposits of Rs 2 crore and above in non-resident external (NRE) accounts of certain tenures at higher interest rates under a special two-day window. India's largest lender by market value is reaching out to Indian diaspora overseas to attract dollar inflows.

The move is likely aimed at ensuring dollar inflows at a time when aggressive hikes in COVID-era interest rates are boosting the appeal of safe-haven assets around the globe.

HDFC Bank is offering a 50 basis-point higher interest rate in NRE deposits of a minimum Rs 2 crore to less than Rs 25 crore under the special window, which allows non-resident Indians to invest in rupees, according to the lender's website.

Source: HDFC Bank website

Under the window, available on Wednesday and Thursday, HDFC Bank is offering an annual rate of 6.8 percent on NRE deposits worth Rs 2 crore to less than Rs 150 crore for tenures of 12 months to less than 15 months, according to the HDFC Bank website.

This marks a higher interest rate compared with domestic deposits. HDFC Bank pays interest at the rate of 6.3 percent on domestic deposits of Rs 2 crore to less than Rs 25 crore in the same tenures.

HDFC Bank could be offering higher interest rates to NRIs on deposits to benefit from weakness in the rupee against the dollar in the form of dollar inflows.

The move comes at a time when the Fed is widely expected to announce yet another rate hike later in the day. It is also in line with the RBI's moves to attract more foreign inflows into the country.

Earlier this month, the RBI liberalised certain norms to boost forex inflows, in a move aimed at arresting a sustained fall in the rupee. It allowed commercial banks to garner FCNR(B) and NRE deposits from the Indian diaspora without any cap on interest rates, till October 31 and November 4 respectively.

ALSO READ: RBI moves to bolster sagging rupee and attract more foreign flows

How does it work?

In NRE deposits, foreign currency is converted into rupees at the time of setting up the account. In such an offering, the currency conversion risk at maturity is borne by depositors, and an option to withdraw prematurely is not available.

Depreciation in the rupee against the dollar, which is at a 20-year high against six peers other than the rupee, increases the value of every dollar earned in rupees. The US currency — just like gold — is often viewed as a safety bet against inflation and uncertainty in financial markets.

Although the rupee has gained some ground from its record lows against the greenback, it is still not far from the 80 mark — a level hit for the first time ever this month.

HDFC Bank shares rose by as much as Rs 12.4 or 0.9 percent to Rs 1,405 apiece on BSE.

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First Published:Jul 27, 2022 12:01 PM IST