Bankers say regulatory and tax-related issues have slowed potential inflows, even as UAE-based NRIs contribute strongly to India’s foreign currency mobilization
The United Arab Emirates has emerged as the largest contributor to India’s recent Foreign Currency Non-Resident (Bank), or FCNR(B), deposit mobilisation, although bankers believe inflows could have been significantly higher if certain operational and regulatory hurdles had been addressed.
Industry estimates suggest that UAE-based non-resident Indians (NRIs) have contributed more than US$10 billion of the over US$20 billion mobilised under the Reserve Bank of India’s (RBI) special FCNR(B) deposit drive launched to strengthen the country’s foreign exchange reserves.
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The RBI introduced a temporary package of measures in June, including a concessional foreign exchange swap facility and relaxation of interest rate caps on FCNR(B) and select NRE deposits until September 30, 2026
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The measures encouraged banks to offer more attractive returns on foreign currency deposits and attract overseas funds from NRIs
However, bankers say the response from the UAE could have been even stronger. Recent restrictions by the UAE Central Bank on the activities of representative offices of foreign banks have limited customer outreach and documentation support. Some banks have also pointed to operational bottlenecks that have slowed account opening and deposit processing.
Tax considerations and differing regulatory interpretations in some overseas jurisdictions have also affected participation by certain investors, although demand from UAE-based depositors has remained robust.
The strong inflows have already begun to support India’s external position. RBI data show that total inflows under its special foreign exchange mobilisation schemes reached US$40.81 billion by the end of July, with FCNR(B) deposits accounting for the largest share. The inflows have also contributed to a rise in India’s foreign exchange reserves in recent weeks.
Banks expect deposit mobilisation to gather further pace before the RBI’s special window closes at the end of September, particularly if remaining operational issues are resolved and attractive interest rates continue to encourage participation from overseas Indians.
