The Reserve Bank of India’s latest measures aimed at boosting foreign currency inflows have made Foreign Currency Non-Resident Bank [FCNR(B)] deposits increasingly attractive, prompting many NRIs to rethink where they should invest their savings.
Following the RBI’s introduction of a special swap facility, several Indian banks have raised FCNR(B) deposit rates to between 6% and 7%. The central bank will bear the hedging cost on deposits with maturities of three to five years, while banks have also been exempted from CRR and SLR requirements, making the scheme more appealing.
According to Motilal Oswal Financial Services, major lenders are now offering around 6% on FCNR(B) deposits, while some smaller banks are providing rates close to 7%. The brokerage estimates that these measures could attract $40-50 billion in foreign exchange inflows during FY27.
Unlike NRE deposits, which are held in Indian rupees, FCNR(B) deposits are maintained in foreign currencies such as the US dollar, euro, pound sterling and Japanese yen. Since both the principal and interest are repaid in the same currency, investors are protected from rupee depreciation, making the scheme attractive for NRIs concerned about currency fluctuations.
NRE fixed deposits, meanwhile, continue to offer tax-free interest and full repatriation benefits. Many banks currently provide interest rates ranging from 6.5% to 7.5%. However, returns can be impacted if the rupee weakens significantly against the investor’s home currency when funds are converted back.
In comparison, fixed-income products and certificates of deposit in the United States generally offer returns of 4-5%. While these investments provide stability and eliminate exchange-rate risk, the recent rise in FCNR(B) rates has narrowed the gap in returns, making Indian deposits more competitive.
Some wealth managers believe FCNR(B) deposits now offer a balanced option, combining higher yields with protection against currency volatility. Certain analysts have also highlighted the possibility of enhancing returns through leveraged strategies, with Motilal Oswal estimating potential returns of 15-26% under specific conditions. However, such strategies involve borrowing and are considered suitable only for experienced investors.
Ultimately, the right choice depends on an investor’s priorities. NRIs seeking protection from currency fluctuations may prefer FCNR(B) deposits, while those comfortable with rupee exposure in pursuit of higher returns may opt for NRE deposits. Investors prioritising safety and simplicity may continue to favour US fixed-income products.
With FCNR(B) rates currently at some of their highest levels in years, NRIs now have a wider range of investment options to choose from.
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