Banks mobilise $17.40 billion under special FCNR(B) scheme

The special FCNR(B) dispensation is aimed at strengthening the country’s balance of payments and incentivising capital inflows, the RBI said. After the West Asia conflict started, the rupee depreciated and came close to 97 against the dollar and foreign investors pulled out funds from the market amid the spike in crude oil prices and the RBI used forex kitty to prevent a slide in the rupee value. On Monday, the rupee closed 17 paise down at 96.45 against the dollar.

The central bank has permitted banks to swap these deposits with the RBI at a concessional rate, effectively covering the entire hedging cost. By absorbing the hedging burden, the RBI has made FCNR(B) deposits a more attractive source of overseas funding for lenders. Experts believe the steps announced may attract an additional $50 billion to $70 billion in foreign capital into Indian markets with banks offering higher interest rates of around 7% after considering the hedging sops.

When asked whether the banking industry as a whole will be able to mobilise around $50 billion under the scheme, Punjab National Bank MD and CEO Ashok Chandra said, “I believe it will. Most of the inflows across the industry are likely to come during the latter half of August and September, so I am optimistic that the overall target can be achieved.”

Overseas borrowing norms, NRI deposits

The RBI had also eased norms for state-owned enterprises to borrow overseas. Under the overseas foreign currency borrowing (OFCB) scheme, banks mobilised $1.97 billion and under external commercial borrowings (ECBs) scheme, $1.34 billion has been raised so far, the RBI said on Monday.

The total mobilisation under three schemes — FCNR, OFCB and ECB — now stands at $20.71 billion. Out of the total NRI deposits of $165.65 billion as of March 2026, FCNR(B) deposits amounted to $33.75 billion, according to RBI data.

FCNR(B) deposits are fixed-term bank deposits that can be opened in India by NRIs, Overseas Citizens of India (OCIs), and Persons of Indian Origin (PIOs). These deposits allow overseas Indians to maintain their savings in designated foreign currencies such as the US dollar, pound sterling, euro, Japanese yen, Australian dollar, and Canadian dollar, rather than converting their funds into Indian rupees.

Interest earned on FCNR(B) deposits is exempt from income tax in India as long as the depositor qualifies as a non-resident under Indian tax laws. Under the current framework, banks can offer rates linked to internationally accepted benchmark rates.

2013 taper tantrum: How RBI boosted forex inflows

During the taper tantrum in 2013 — withdrawal of accommodative money policy — in the US, India faced significant capital outflows and sharp pressure on the rupee. To bolster foreign exchange inflows, the RBI introduced a special forex swap window, allowing banks to mobilize fresh FCNR(B) deposits from NRIs with a minimum maturity of three years and also tier-1 banking capital and swap the proceeds with the RBI at a concessional fixed rate of 3.5%, thus giving the banks an incentive to mobilize these deposits at an attractive spread.

Indian banks raised about $34 billion of funds in the three months the scheme was operational for. Similar schemes have been run by the RBI and the government of India called Resurgent India bonds in 1998 and India millennium deposits in 2000 in order to bolster capital flows, Bank of America said in a note.

Applying the same penetration rate to the current deposit base would imply potential inflows of around $55-60 billion.

“The RBI’s recent announcement on foreign currency non-resident (bank) (FCNR (B)) deposits is likely to add near-term tailwinds for the banking system’s deposit accretion, which otherwise has been lagging credit growth,” said Karan Gupta, Head and Director, Financial Institutions, India Ratings.