The Reserve Bank of India’s (RBI) latest push to attract Foreign Currency Non-Resident (Bank), or FCNR(B), deposits has brought the little-known investment option back into the spotlight.
The move comes after FCNR(B) inflows plunged sharply from more than $7 billion in FY25 to just $946 million in FY26. To reverse the trend, the RBI has introduced a special concessional swap facility, encouraging banks to mobilise fresh FCNR(B) deposits with maturities of three to five years.
The scheme has already seen a strong response. Upasna Bhardwaj, Chief Economist at Kotak Mahindra Bank, said that banks have mobilised around $17 billion under the RBI’s scheme in a short period, although it is not yet clear how much of this is fresh money and how much represents renewals of existing deposits.
“We continue to expect overall inflows of $70-75 billion under this scheme. However, the impact on the rupee may be limited mostly to the RBI’s improved ability to intervene in the market as forex reserves will rise,” Bhardwaj said.
But what exactly are FCNR(B) deposits, how are they different from NRE and NRO accounts, and should NRIs consider investing in them?
WHAT IS AN FCNR(B) DEPOSIT?
An FCNR(B) deposit is a fixed deposit that allows Non-Resident Indians (NRIs) and Overseas Citizens of India (OCIs) to keep their money in foreign currencies such as the US dollar, British pound, euro or Japanese yen instead of Indian rupees.
Unlike a regular bank deposit in India, the money remains denominated in foreign currency throughout the investment period.
This means that if an NRI deposits US dollars into an FCNR(B) account, both the principal and interest are paid back in US dollars. They are not converted into rupees.
The biggest advantage is that the investor does not face exchange rate risk.
WHY ARE FCNR(B) DEPOSITS DIFFERENT?
Vishal Lohia, Partner at Dhruva Advisors, explained that the biggest difference lies in who bears the currency risk.
“FCNR(B) account is a foreign currency account (i.e., the exchange risk is borne by the RBI) vis–vis NRE and NRO account which is denominated in INR (i.e., the exchange risk is borne by the depositor). Consequently, foreign exchange risk is eliminated.”
Simply put, if the rupee weakens sharply during the deposit period, an FCNR(B) depositor is protected because the money remains in foreign currency.
In contrast, NRE and NRO deposits are maintained in Indian rupees. If the rupee depreciates against the dollar or any other foreign currency, the depositor ultimately bears that loss when converting the money back.
Another key difference is that FCNR(B) accounts can only be opened as fixed deposits, while NRE accounts can be savings, current, recurring or fixed deposit accounts.
WHICH IS BETTER: FCNR(B), NRE OR NRO?
Each account serves a different purpose.
According to Lohia, FCNR(B) and NRE deposits are both fully repatriable, meaning the money can be freely taken back overseas.
NRO accounts, however, have a repatriation limit of $1 million per financial year.
Interest income also differs significantly.
Interest earned on FCNR(B) deposits is exempt from tax in India as long as the depositor continues to qualify as a non-resident under FEMA or is a Resident but Not Ordinarily Resident (RNOR).
Interest on NRE deposits also enjoys tax exemption under similar conditions.
However, interest earned on NRO deposits is fully taxable in India, with banks deducting tax at source at 30%, along with the applicable surcharge and cess. Relief may be available under a Double Taxation Avoidance Agreement (DTAA), subject to certain conditions.
Lohia noted that NRE deposits generally offer higher interest rates than FCNR(B) deposits because they are rupee-denominated.
WHO SHOULD CONSIDER FCNR(B) DEPOSITS?
Experts say FCNR(B) deposits are not meant for every NRI.
“They are ideal for NRIs and OCIs whose future liabilities and capital consumption will be in a foreign currency,” Lohia said.
For example, an NRI planning to buy a house overseas, pay university fees abroad or meet other future expenses in dollars or pounds may find FCNR(B) deposits more suitable than rupee deposits.
“They effectively allow the parking of foreign earnings in India while entirely bypassing the exchange rate volatility that eats into NRE returns,” he added.
WHY HAS THE RBI STEPPED IN?
The RBI’s latest initiative is aimed at boosting foreign currency inflows into India.
During its June monetary policy review, the central bank noted that FCNR(B) inflows had fallen dramatically over the past year.
To encourage banks to attract fresh deposits, the RBI announced a concessional swap facility until September 30, 2026.
Normally, banks have to bear the cost of hedging the foreign exchange risk associated with these deposits. Under the new scheme, the RBI will absorb those hedging costs for fresh FCNR(B) deposits with tenures of three to five years.
Lohia said this gives banks greater room to offer better interest rates.
“With the RBI taking this cost off their books, banks now have the margin room to pass these savings directly to depositors. One can expect banks to increase FCNR(B) rates for longer tenors to aggressively capture dollar inflows.”
WILL FCNR(B) RATES GO UP?
Possibly.
Since banks save on hedging costs under the RBI’s scheme, experts believe they may raise deposit rates, especially on longer-term FCNR(B) deposits, to attract more overseas money.
However, Lohia said the choice ultimately depends on an investor’s view on the rupee.
“The same should depend entirely on the depositor’s view on INR stability and their risk appetite.”
ARE THERE OTHER OPTIONS FOR NRIs?
Besides FCNR(B) deposits, experts point to other investment avenues.
Lohia said foreign currency fixed deposits offered by IFSC Banking Units in GIFT City may provide slightly higher returns than mainland FCNR(B) deposits because these institutions operate under lighter reserve requirements while retaining similar tax benefits.
He also highlighted government securities under the Fully Accessible Route (FAR), where recent tax changes and expanded access could improve liquidity, although some of these tax benefits do not apply to NRIs and OCIs.
While FCNR(B) deposits are tax-free in India, that does not necessarily mean they are tax-free in the country where the NRI lives.
An Economic Times report noted that NRIs in countries such as the US and Singapore are worried that local withholding tax rules and overseas tax obligations could reduce the effective returns from certain FCNR(B) strategies, especially when leverage is used. The report also highlighted additional reporting requirements for US residents relating to foreign assets.
FCNR(B) deposits are designed for NRIs who want to keep their savings in foreign currency while avoiding the risk of rupee depreciation. They offer tax-free interest in India, full repatriability and protection from currency fluctuations.
With the RBI now incentivising banks to mobilise these deposits and expectations of better interest rates, FCNR(B) deposits are once again becoming an attractive option. However, experts say investors should weigh their future currency needs, tax obligations in their country of residence and overall financial goals before choosing between FCNR(B), NRE and NRO accounts.
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