Non-Resident Indians (NRIs) are showing renewed interest in Foreign Currency Non-Resident (Bank) [FCNR(B)] deposits after several banks increased interest rates under a special Reserve Bank of India (RBI) window that will remain open until September 30, 2026. With higher returns now on offer, financial experts say NRIs should also understand the differences between FCNR(B), NRE, and NRO accounts before making an investment.
The RBI recently relaxed regulations for fresh FCNR(B) deposits with tenures of three to five years, encouraging banks to attract more foreign currency deposits. The initiative is aimed at strengthening banks’ foreign currency reserves while supporting India’s external financial position.
Following the RBI’s move, banks have become more competitive by offering attractive interest rates. Equitas Small Finance Bank is currently offering returns of up to 7.52% on select US dollar FCNR(B) deposits, while several other banks are providing interest rates ranging between 5% and 7%, depending on the currency and tenure.
Unlike conventional fixed deposits, FCNR(B) deposits allow NRIs to maintain savings in foreign currencies such as the US dollar, British pound, euro, Japanese yen, Australian dollar, and Canadian dollar. Since both the principal and interest remain in the chosen foreign currency, investors are protected from fluctuations in the Indian rupee. For eligible NRIs, the interest earned on FCNR(B) deposits is also exempt from income tax in India, making them an attractive investment option.
Before opening an FCNR(B) deposit, NRIs must comply with the Foreign Exchange Management Act (FEMA). Once an individual becomes an NRI, they are no longer permitted to operate a regular resident savings account and must convert it into either an NRE (Non-Resident External) account or an NRO (Non-Resident Ordinary) account.
An NRE account is designed for income earned outside India. Both the principal and interest are fully repatriable, and the interest earned is tax-free in India. In contrast, an NRO account is meant for income generated within India, such as rent, pensions, dividends, or other domestic earnings. Interest on NRO deposits is taxable, and repatriation is allowed only within RBI guidelines and prescribed limits. Fixed deposits can be opened using both NRE and NRO accounts.
According to the State Bank of India’s Economic Research Department (ERD), banks could attract $8-9 billion through FCNR(B) deposits during the RBI’s special window. The report expects inflows to begin early rather than towards the end of the scheme, unlike the similar FCNR initiative launched in 2013.
SBI attributes the expected surge to several factors, including the RBI bearing the hedging cost on the principal amount of fresh FCNR(B) deposits, greater regulatory clarity regarding standby letters of credit and leverage norms, the extended four-month mobilisation period, and the focus on longer five-year deposits that are expected to provide greater stability to foreign capital inflows.
For NRIs holding surplus foreign currency, FCNR(B) deposits currently offer an opportunity to earn competitive returns without exposing investments to exchange rate risk. However, financial experts recommend comparing interest rates across banks, reviewing deposit terms, lock-in conditions, and tax implications before investing. They also advise ensuring that the appropriate NRE or NRO account is in place, as FEMA regulations prohibit NRIs from continuing to operate regular resident savings accounts after their residential status changes.
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