Higher interest rates and a temporary forex swap facility encourage overseas Indians to place more foreign currency deposits in India
The Reserve Bank of India’s (RBI) special Foreign Currency Non-Resident (Bank), or FCNR(B), deposit scheme has begun attracting renewed interest from Non-Resident Indians (NRIs), with banks reporting stronger inflows after launching higher-yield deposit products under the new framework.
The RBI introduced the time-bound initiative in June to strengthen foreign exchange reserves by encouraging fresh foreign currency deposits from NRIs. Under the scheme, the central bank has opened a special US dollar-rupee forex swap facility for eligible FCNR(B) deposits with maturities of three to five years raised until 30 September 2026. By absorbing banks’ hedging costs, the facility enables lenders to offer more competitive interest rates to overseas depositors.
Several public and private sector banks have since increased FCNR(B) deposit rates, with some offering returns of more than 6% on US dollar deposits. The improved rates are intended to make Indian bank deposits more attractive at a time when global competition for foreign currency savings remains strong.
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The RBI’s move follows a sharp decline in FCNR(B) inflows during the previous financial year, prompting concerns over reduced overseas deposit mobilization
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The special scheme is expected to help reverse that trend by encouraging NRIs to channel more foreign currency savings into the Indian banking system
Under the revised framework, eligible deposits carry a mandatory one-year lock-in period and are available only for fresh deposits with tenures ranging from three to five years. Deposits continue to remain denominated in foreign currency, protecting investors from fluctuations in the rupee’s exchange rate.
Banking analysts believe the initiative could provide additional support to India’s external sector by improving foreign exchange liquidity while offering NRIs an opportunity to earn higher returns without taking on currency conversion risk. The RBI has also temporarily relaxed interest rate norms for FCNR(B) and select NRE deposits, giving banks greater flexibility to attract overseas funds before the scheme closes at the end of September.
