Major Indian banks, including HDFC Bank, State Bank of India (SBI), Punjab National Bank (PNB), and Axis Bank, have sharply reduced interest rates on Foreign Currency Non-Resident (FCNR) deposits effective September 1, 2026. This widespread rate cut comes after the government's special hedging support for these deposits concluded.
Why FCNR Deposit Rates Fell
The primary reason for the rate reduction is the withdrawal of a special government hedging subsidy. In June 2026, the government had announced it would bear hedging costs for 3-5 year FCNR deposits until September 30, 2026, to attract more dollar inflows into India. This led banks to significantly raise their FCNR rates, with some offering as much as 6-6.5%.
However, the response from non-resident depositors was stronger than anticipated, leading to a substantial inflow of US dollar deposits. Provisional data from the Reserve Bank of India (RBI) indicates that inflows through the special FCNR-B deposit scheme exceeded $100 billion, reaching $127.2 billion via the concessional swap window. Including external commercial borrowings (ECBs) and overseas foreign currency borrowings (OFCBs), total inflows hit $136.3 billion, well above market estimates. Due to this overwhelming response, the government advanced the end date for the hedging support to August 31, prompting banks to roll back the higher rates.
Impact on Depositors: New FCNR Rates
Banks have revised their FCNR deposit rates downwards across various tenures. Here’s a comparison of previous peak rates and the new rates from September 1, 2026:
- HDFC Bank: Reduced from a peak of 6.25% to 3.50% (3-4 years) and 3.15% (4-5 years).
- ICICI Bank: Cut from 6.25% to 3.25% (3-5 years).
- SBI: Rates for deposits above $1 million, previously up to 6%, are now 3.35% (3-4 years), 2.95% (4-5 years), and 3.05% (5 years).
- PNB: Lowered from 6.50% to 3.25% (3-4 years) and 3.06% (5 years) for deposits under $1 million.
- Axis Bank: Reduced to 3.25% (3-4 years) and 2.95% (4-5 years) for deposits under $1 million.
- Kotak Mahindra Bank: Cut from 6.30% to 3.00% for five-year deposits above $0.5 million.
What Are FCNR Accounts?
An FCNR (Foreign Currency Non-Resident) account allows Non-Resident Indians (NRIs), Overseas Citizens of India (OCIs), and Persons of Indian Origin (PIOs) to hold fixed deposits in foreign currencies. These deposits offer several benefits, including tax-free interest, easy repatriation of funds, and protection against exchange-rate fluctuations. They remain a vital option for overseas Indians looking to manage their foreign currency savings in India.