There is, however, no change in the interest rate for other tenors, which is kept at 4.5 per cent across the board for maturities above six months but below three years. The three-year maturity is the highest possible maturity for FCNR-B deposits.

"The rate hike at the longer end is owing to the better opportunity to deploy longer maturity funds profitably," a BoB official said. It may be recalled that BoB had recently sought the Reserve Bank permission to deploy its FCNR-B funds in overseas Indian corporate paper by on-lending them to its foreign branches.

Since August, all the banks had been regularly marking down their FCNR-B deposit basis. Theaverage FCNR-B deposit rates have come down from 5.75 per cent for six-month deposits in August this year to around 4.5 per cent at present. The rate cuts have been triggered off by narrowing the choice for profitable deployment of the funds as well as the recent cuts in US treasury rates.

Overseas Indian papers offer high returns in the range of 8-10 per cent compared with the 4 per cent returns on US treasuries and a little more in the overseas interbank market. If the tenor could be matched, then FCNR-B funds could be lent to Indian banks' overseas branches at the prevailing rate and they in turn can re-invest them at high profits in Indian corporate papers abroad. The net gain for the bank concerned will be positive, even though they will have to book losses on their FCNR-B account, while showing profits on their international operations. The Indian papers available at large discounts are mostly of triple-A rated Indian companies like NTPC, Reliance and ICICI, but are being sold at large discounts totheir face value owing to a higher country-risk perception and growing aversion to emerging markets paper from developed countries.