The sharp rise in interest rates on FCNR (B) deposits denominated in US dollars follows RBI’s June 5 measures to bolster dollar inflows to stabilise the rupee  | Photo Credit: SUKREE SUKPLANG

The Reserve Bank of India seems to be pulling out all the stops to ensure that banks are able to attract deposits from Non-Resident Indians (NRIs).

It has temporarily withdrawn interest rate ceiling on fresh FCNR(B) deposits of 3-5 year tenors and the restriction on interest rates on NRE deposits of 3 year and above tenors.

This move comes even as banks have kicked off rate hikes on foreign currency non-resident (bank)/ FCNR (B) US dollar deposits in the 3-5 years tenor, with interest rates being increased to 6-7 per cent thereabouts, from the earlier 3 per cent odd levels.

The sharp rise in interest rates on FCNR (B) deposits denominated in US dollars follows RBI’s June 5 measures to bolster dollar inflows to stabilise the rupee, including by bearing the full hedging cost for raising fresh 3–5-year FCNR (B) deposits.

The interest rate ceiling (overnight Alternative Reference Rate for the respective currency/ Swap plus 350 basis points) applicable to fresh FCNR(B) deposits of 3-5 year tenors mobilised by banks, including the deposits that are renewed upon maturity, is temporarily withdrawn with effect from June 17, 2026, for the period until September 30, 2026, according to a RBI circular to banks.

The restriction on interest rates (overnight Alternative Reference Rate for the respective currency/ Swap plus 250 basis points) on NRE (Non-Resident External) rupee deposits of 3 year and above tenors mobilised by banks, including the deposits that are renewed upon maturity, is temporarily withdrawn with effect from June 17, 2026, for the period until September 30, 2026. However, any transfer from NRO (Non-Resident Ordinary) accounts to NRE accounts shall not qualify for such exemption.

So far, interest rates on NRE / NRO deposits could not be higher than those offered by a bank on comparable domestic rupee term deposits

hedging cost

Bankers say the revised interest rates of about 6-7 per cent on FCNR (B) they are currently offering takes into account the fact that RBI is bearing the full hedging cost for raising fresh 3–5-year deposits. So, there may be limited scope for raising interest rates further.

When it comes to NRE deposits, the interest rates can be raised only if RBI provides exemption from the statutory reserve ratios such as the cash reserve ratio and the statutory liquidity ratio. The RBI circular is silent on this aspect.

SBI economists expect around $40-45 billion to come in through the FCNR (B) deposits route.

Banking expert V Viswanathan observed that the RBI’s latest move, removing the interest rate ceiling on fresh FCNR(B) deposits as well as NRE deposits, is aimed at maximising forex inflows, which are stable, not based on external sensitivities or events unrelated to domestic economy.

“Now, since the US-Iran peace deal is almost irreversible, the growth story may revive and so also investments into the stock market. So, RBI would like to ensure adequate liquidity to support lending to consumer and productive segments,” he said.

Published on June 17, 2026