A once-popular financial instrument targeting NRIs—special Japanese yen (JPY) deposits—has come under regulatory heat after issues surrounding IndusInd Bank. These so-called ‘premium rupee plans’ (PRPs), which offered above-market returns, are now losing their sparkle as the Reserve Bank of India (RBI) intervenes to bring deposit rates in line with market realities, reported economictimes.indiatimes.com.
Yes Bank slashes JPY FD rates as RBI tightens rules on aggressive NRI deposit strategies.
In recent months, banks had marketed JPY-linked fixed deposits to attract NRI funds, offering attractive rupee payouts on maturity. These deposits were backed by selling yen in the forward market—a move that temporarily boosted returns for depositors. However, following the IndusInd episode, the RBI has reportedly urged banks to discontinue offering artificially high returns, citing market misalignment and prudential concerns.
Yes Bank, one of the lenders that had promoted these schemes—though less aggressively than IndusInd—has since slashed interest rates on JPY FDs from over 2% to below 0.4%, signaling a swift strategy shift
Regulator clamps down on ‘premium rupee plans’ amid concerns over market distortions and risks.
These premium rupee plans (PRPs) involved NRIs depositing foreign currency—primarily yen—with Indian banks, which then promised rupee returns fixed at the time of investment. The appeal lay in the higher yields generated through forex market maneuvers. But with the RBI scrutinizing these practices, the flow of funds into such schemes is expected to shrink.
Senior bankers say the central bank’s directive is a corrective move to prevent regulatory arbitrage and avoid potential mismatches in bank liabilities. The adjustment may also encourage NRIs to explore more stable and transparent instruments moving forward.
As regulatory pressure mounts, the golden era of yen-based NRI deposits appears to be fading fast.
The fallout from the IndusInd issue may not be limited to just yen deposits. Analysts expect wider introspection on similar structured products offered to NRIs. While these instruments did serve short-term funding goals for banks, the RBI’s intervention signals a longer-term commitment to stability and transparency in offshore deposit mobilization.