Indian banks are significantly increasing interest rates on Foreign Currency Non-Resident (Bank) or FCNR(B) deposits. This strategic move aims to attract a greater influx of overseas dollar deposits from Non-Resident Indians (NRIs) before the Reserve Bank of India's (RBI) special deposit window closes on September 30, 2026. The heightened competition is also fueled by rising global interest rates and increased costs for banks to borrow funds overseas.
The RBI initiated this special FCNR(B) deposit scheme on June 8, 2026, offering banks relaxed norms to mobilize foreign currency funds. Since its inception, global benchmark yields have seen an upward trend, making foreign currency deposits more appealing to investors.
Major Banks Revise Rates
Among the first to revise their FCNR(B) deposit rates are two of India's largest private lenders, ICICI Bank and HDFC Bank. ICICI Bank has increased its FCNR(B) deposit rate for amounts of $5 million and above from 6% to 6.25%. HDFC Bank has similarly raised its rates by 25 basis points on three-to-five-year US dollar FCNR(B) deposits, also reaching 6.25%. Industry experts anticipate that more banks will follow suit in the coming weeks as they strive to maximize inflows from NRIs before the deadline.
Banking executives explain that these rate adjustments are a direct response to the escalating costs of overseas borrowing and the fierce competition for foreign currency. One senior private sector bank executive noted, "Overseas borrowing has become more expensive and banks have to adjust deposit rates accordingly. Competition has also intensified as lenders try to mobilise as many foreign currency deposits as possible before the special window closes."
Understanding FCNR(B) Deposits
An FCNR(B) deposit is a fixed-term foreign currency account specifically designed for NRIs. It allows them to park their overseas earnings in major global currencies—such as the US dollar, British pound, euro, Australian dollar, Canadian dollar, and Japanese yen—without the need for conversion into Indian rupees. This feature shields depositors from exchange rate risks. These deposits typically have tenures ranging from one to five years. Both the principal amount and the interest earned are fully repatriable, and crucially, the interest is exempt from income tax in India. Under the RBI's special facility, banks have been offering attractive promotional rates, often between 6% and 6.5% on US dollar deposits, subject to a mandatory one-year lock-in period.
Inflows and Market Impact
During June and July, India saw nearly $49 billion in foreign inflows, encompassing FCNR(B) deposits, overseas borrowings, and investments in government bonds. However, despite these significant inflows, the Indian rupee has only appreciated about 0.4% against the US dollar since early June. This modest appreciation is notably less than the more than 10% rally observed during the 2013 FCNR(B) mobilization efforts.
Analysts attribute this difference to the current global economic climate, characterized by elevated oil prices, geopolitical tensions in West Asia, and a strong US dollar. Furthermore, FCNR(B) deposits do not directly enhance dollar liquidity in the forex market because banks typically swap these deposits with the RBI for rupees under the central bank's special facility. The RBI's interventions to stabilize currency volatility and banks' hedging strategies for future foreign currency liabilities have also limited the rupee's direct response.
Outlook for NRI Inflows
Despite the limited impact on the rupee's appreciation, bankers remain optimistic about the continued momentum of FCNR(B) mobilization. They project that total inflows could potentially reach $75 billion by September 30, buoyed by the attractive returns and tax-efficient features that these deposits offer to NRIs.