There are no free lunches in Economics. But you can sometimes get free snacks. The RBI move to lift the rate cap on FCNR and NRE deposits comes close. @Shiprasorout did a comparison with what US banks offer and the gap with Indian banks is significant (in both USD and INR)
Some banks like SBI have already raised their FCNR rates. FCNR is held in foreign currency and NRE in Indian Rupees. With NRE you can argue that rupee will fall and wipe out extra returns. With FCNR the risk is only that of default. livemint.com
So why do Indian banks offer higher rates even in dollars? Because India is an emerging market in the eyes of a US investor and hence carries higher default risk. It's really a free lunch, but the chances of HDFC, SBI and ICICI defaulting are low.
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