The Reserve Bank of India’s recent measures to boost foreign currency deposits from Non-Resident Indians (NRIs) have led to a sharp rise in FCNR(B) deposit rates, with several banks now offering returns ranging from 6% to over 7% on US dollar deposits.
The move comes at a time when inflows into Foreign Currency Non-Resident (Bank) [FCNR(B)] accounts have been slowing. According to RBI data, fresh FCNR(B) deposits declined nearly 39% year-on-year to $166 million in April 2026, compared to $272 million in April 2025. The decline reflected the difficulties Indian banks faced in attracting NRI deposits amid high global interest rates.
For much of FY26, US interest rates remained above 4%, making it challenging for Indian banks to offer competitive returns after accounting for hedging costs, which industry estimates placed at around 3.5%. As a result, many overseas Indians preferred alternative investment options despite the safety offered by FCNR(B) deposits.
Although fresh inflows weakened, the total outstanding FCNR(B) balance increased from $33.08 billion in April 2025 to $33.92 billion in April 2026. Analysts attribute this growth primarily to deposit renewals and currency valuation gains rather than strong new deposits.
Market participants also believe some investors delayed fresh deposits in anticipation of policy support from the RBI. With the rupee facing depreciation pressure against the US dollar earlier this year, expectations grew that the central bank would introduce measures similar to those used during previous periods of currency volatility.
Responding to the situation, the RBI announced a two-pronged package in June. On June 8, it introduced a special swap facility under which the central bank would absorb hedging costs on fresh three-to-five-year FCNR(B) deposits mobilized until September 30, 2026. Later, on June 17, the RBI removed the interest-rate ceiling on such deposits, allowing banks complete freedom to determine rates.
Following the announcements, several leading lenders, including HDFC Bank, ICICI Bank, Axis Bank, Punjab National Bank, Bank of Baroda, Yes Bank and AU Small Finance Bank, revised their FCNR(B) rates upward. Some institutions are now offering returns exceeding 7% on select US dollar deposits, making them highly attractive for NRIs seeking stable fixed-income investments.
FCNR(B) deposits allow NRIs to hold funds in foreign currencies such as the US dollar, euro, pound sterling, Japanese yen, Australian dollar and Canadian dollar. Since the deposits remain in the original foreign currency, investors are protected from exchange-rate fluctuations. Both the principal amount and interest earned are fully repatriable.
For NRIs, especially those residing in Gulf countries where personal income tax is generally absent, the combination of higher interest rates, tax-free returns in India and currency-risk protection has significantly enhanced the appeal of FCNR(B) deposits.
However, the effectiveness of the RBI’s latest measures will become clearer only in the coming months. Financial markets will closely track deposit data for June and July to determine whether the higher interest rates can successfully revive fresh NRI inflows and strengthen foreign currency deposits in the Indian banking system.
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