Key facts
- Indian banks are significantly increasing interest rates on foreign currency deposits for NRIs.
- Rates are being raised by up to 350 basis points to attract dollar inflows.
- AU Small Finance Bank offers 7.1% on three to four-year FCNR(B) deposits.
- HDFC Bank and Central Bank of India offer up to 6% on comparable tenures.
- The Reserve Bank of India will bear the hedging cost for fresh 3 to 5-year FCNR(B) deposits until September 30, 2026.
- An NRI or OCI may earn an additional $1,277 in interest on a $10,000 investment in a 5-year FCNR(B) deposit.
Indian banks are significantly increasing interest rates on foreign currency deposits for Non-Resident Indians (NRIs), Overseas Citizens of India (OCIs), and Persons of Indian Origin (POIs) to attract dollar inflows and bolster the rupee. The Reserve Bank of India (RBI) announced that the government will cover the hedging costs for fresh Foreign Currency Non-Resident (Bank) Deposit (FCNR(B)) accounts with maturities of 3 to 5 years until September 30, 2026.
This initiative is expected to allow banks to offer higher interest rates to depositors. Estimates suggest that on a $10,000 investment in a 5-year FCNR(B) deposit, an NRI or OCI could earn an additional $1,277 in interest. Previously, banks incurred hedging costs of approximately 3% annually to protect against currency risk, which reduced the interest offered to depositors. With the government absorbing this cost, banks can now pass on more benefits.
Some banks have already updated their rates. HDFC Bank and Central Bank of India are offering up to 6% on their 3 to 5-year FCNR(B) deposits, while AU Small Finance Bank is providing a 7.1% rate on deposits maturing in 3 to 4 years. FCNR(B) accounts allow investments in designated foreign currencies like USD, GBP, EUR, AUD, CAD, and JPY, with interest exempt from Indian income tax. Unlike Non-Resident External (NRE) accounts, which use Indian currency and have taxable interest, FCNR(B) deposits offer principal and interest in foreign currency, insulating depositors from currency depreciation risks and are fully repatriable.