Bankers say the regulatory incentive alone, however, may not be sufficient to trigger large inflows. With US dollar deposit rates in major markets such as the US still offering returns of over 4%, Indian banks may need to raise FCNR(B) deposit rates by at least 100 basis points (equals 1%, 1 basis point = 0.01%) to remain competitive and persuade non-resident Indians (NRIs) to shift funds to India.
In the financial year 2025-26 (FY26), FCNR(B) deposit inflows plunged by 86% to $946 million from $7.1 billion in FY25, with the amount outstanding rising to $33.8 billion at the end of March. Unless banks offer a meaningful rate premium over overseas alternatives, the response from depositors could remain muted despite the RBI’s support.
What are FCNR(B) deposits?
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.
What are the FCNR rates now?
Compared with conventional rupee fixed deposits, interest rates on FCNR(B) deposits remain significantly lower, typically by 250-300 basis points or more. For instance, State Bank of India (SBI) currently offers 3.35% on FCNR(B) deposits with a tenure of 3-4 years, 2.95% for 4-5 years, and 3.05% for maturities above five years. HDFC Bank offers 3.65% for 3-4 year FCNR(B) deposits and 3.4% for tenures above four years, while ICICI Bank offers 3% for 3-4 year deposits and 2.9% for deposits exceeding four years.
Compared with this, SBI offers 6.3% for a normal 3-year fixed deposit (FD). HDFC and ICICI offer 6.5% for FDs with tenure of 3-5 years.
The lower rates reflect the fact that FCNR(B) deposits are maintained in foreign currencies belonging to the US, the UK, Europe, and Canada — regions in which benchmark interest rates are generally lower than domestic rupee rates. The RBI’s latest relaxation on FCNR(B) deposits, however, is expected to improve the economics of mobilising such funds. By allowing banks to raise fresh three- to five-year FCNR(B) deposits without bearing the full cost of hedging foreign exchange exposure, banks can offer more attractive rates to overseas depositors without significantly impacting their margins.
Why should Indian banks hike rates?
Indian banks are yet to work out and announce the new rates on FCNR(B) deposits. “Banks need to more than match the interest rates offered by foreign banks in various jurisdictions like the US. Otherwise, funds won’t come. FCNR(B) deposit inflows declined sharply in FY26,” said an official of a nationalised bank.
SBI currently offers around 3.85% on three- to five-year US dollar Certificate of Deposit (CD) products in the US. Comparable offerings from US banks are slightly higher, with Merrick Bank providing a 4.20% annual percentage yield (APY) on a three-year CD and Morgan Stanley offering about 4.30% APY on a five-year CD. These rates are higher than what are being offered by Indian banks for FCNR(B) scheme.
CD rates are widely expected to remain steady as the US interest-rate cycle is on a pause mode now. Following three reductions in the federal funds rate by the US Federal Reserve in 2025, many banks had trimmed the yields offered on CDs and high-yield savings accounts. “The jobs data from the US is good, and therefore, the Fed will not cut rates as President Trump wants. The rates are likely to be on hold for some time,” said an analyst.
What are the new swap terms and conditions?
The latest FCNR(B) swap facility, whose guidelines were announced by the RBI Monday (June 8), comes into effect immediately and will remain open up to October 16 for deposits mobilised until September 30. Banks would be free to price these deposits as per their internal policy, but within the overall ceiling as per the extant guidelines issued by RBI.
The RBI says a bank can avail of the swap facility only once in a week. During any week, the maximum US dollars that a bank would be eligible to swap with RBI would be equal to all eligible FCNR(B) deposits mobilised in equivalent US dollar terms during the preceding week(s) for which the facility has not been availed earlier.
Banks can sell US dollars in multiples of $1 million to RBI and simultaneously agree to buy the same amount of US dollars at the end of the swap period. In the first leg of the transaction, the bank will sell US dollars to the RBI at the FBIL Reference Rate. FBIL refers to Financial Benchmarks India Private Limited, which publishes multiple benchmark interest rates and foreign exchange reference rates daily for the Indian financial market.
The settlement of the first leg of the swap will take place on spot basis from the date of transaction. The second leg of the swap will take place at the same rate as the first leg. The swap will be undertaken at par.
Under the framework, banks are also exempted from maintaining the cash reserve ratio (CRR) and statutory liquidity ratio (SLR). While CRR is the minimum percentage of a bank’s total deposits required to be maintained as liquid cash, SLR refers to the minimum percentage of deposits that banks must maintain in highly liquid assets (such as cash, gold, or government-approved securities) before they can lend money to customers.
What was the NRI deposit mobilisation in FY26?
The steep fall in FY26 reflects subdued mobilisation of fresh foreign currency deposits after the expiry of earlier regulatory incentives and relatively lower interest rates offered on FCNR(B) accounts.
Total NRI deposit inflows also declined during the year, falling to $14.41 billion in FY26 from $16.16 billion in FY25, RBI data shows. NRI deposits include FCNR(B), Non-Resident (External) (NRE) Rupee Account deposits, and Non-Resident Ordinary (NRO) accounts. An NRE account refers to a bank account held in India by NRIs, OCIs, and PIOs, whereas an NRO account is a rupee-denominated bank account for NRIs to manage income earned within India.
There was a noticeable shift, however, in the composition of NRI deposits. Outstanding balances in NRE accounts rose significantly by $7.94 billion in FY26 from an increase of $4.71 billion a year earlier — taking the outstanding under these accounts to $98.56 billion — indicating greater preference among NRIs for rupee-denominated deposits amid attractive domestic interest rates. Similarly, deposits in NRO accounts increased by $5.53 billion from a rise of $4.37 billion in FY25. The NRO deposits outstanding at the end of FY26 stood at $33.33 billion.
The rise in NRE and NRO deposit inflows more than offset the decline in new FCNR(B) deposits. This led to total NRI deposits outstanding rising to $165.65 billion at the end of FY26 from $164.68 billion at the end of FY25.
Reserve Bank of India Governor Sanjay Malhotra in Mumbai on December 5, 2025. Photo: Sankhadeep Banerjee 
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