The Reserve Bank of India (RBI) is strategically reviving its Foreign Currency Non-Resident Bank (FCNR(B)) deposit scheme, a move anticipated to draw significant foreign capital into India. According to SBI Research, these latest initiatives could attract between $55 billion and $65 billion (₹5.2-6.2 lakh crore) in foreign inflows during the fiscal year 2027.
This measure comes as India faces sustained outflows from foreign institutional investors (FIIs) and heightened geopolitical tensions, which have collectively exerted pressure on the Indian rupee. Instead of increasing domestic interest rates, the RBI is leveraging a strategy that proved highly effective in managing the 2013 "taper tantrum."
Understanding FCNR(B) Deposits
FCNR(B) deposits are fixed-term deposits offered by Indian banks to non-resident Indians (NRIs), Overseas Citizens of India (OCIs), and persons of Indian origin. A key advantage of these deposits is that they are maintained in freely convertible foreign currencies, shielding investors from exchange-rate fluctuations over the deposit tenure. Furthermore, both the principal amount and the interest earned are tax-exempt in India.
To enhance the appeal and encourage fresh inflows, the RBI has introduced several incentives. These include a special dollar-rupee swap window and exemptions from Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR) requirements for new FCNR(B) deposits until September 30. The swap facility itself will remain operational until October 16, 2026.
Projected Inflows and Impact
SBI Research projects that FCNR(B) deposits alone could attract $40-45 billion (approximately ₹3.8-4.3 lakh crore). Indian banks are expected to offer attractive interest rates, potentially ranging from 5.5% to 6% on these deposits, a rate significantly higher than the current three-year US Treasury yields of around 4.2%, making them highly appealing to overseas Indians.
In addition to FCNR(B) deposits, SBI Research anticipates that the RBI’s swap facilities for External Commercial Borrowings (ECB), Foreign Currency Convertible Bonds (FCCB), and Overseas Foreign Currency Borrowings (OFCB) will contribute an additional $15-20 billion (₹1.4-1.9 lakh crore). These broader measures aim to reduce hedging costs, improve dollar liquidity, and lower funding expenses for banks and public sector enterprises.
Economic Stabilisation and Rupee Support
The combined inflows of ₹5.2-6.2 lakh crore are expected to significantly boost the banking system. SBI Research predicts that this could elevate banking system deposit growth to 14.5-15% in FY27 and help narrow the credit-deposit gap by nearly ₹1 lakh crore. Moreover, India's balance of payments is projected to swing into a surplus of $5-10 billion in FY27, a substantial improvement from an earlier estimated deficit of $65-70 billion.
Consequently, the current account deficit is forecasted to remain contained at 1.5-1.7% of GDP. These substantial inflows are expected to provide crucial support to the rupee and help stabilise market expectations, potentially averting the need for an immediate shift to a higher domestic interest-rate regime. The report also underscores the central bank's commitment to intervening decisively to prevent sharp currency volatility, cautioning against the risks of excessive rupee depreciation.
By reactivating this successful crisis-era mechanism, the RBI is once again looking to overseas Indians and foreign capital to strengthen India's external position and ensure economic stability.