Key facts
- Indian banks are increasing interest rates on foreign currency deposits for NRIs by up to 350 basis points.
- The government will cover hedging costs for new 3 to 5-year FCNR(B) deposits until September 30, 2026.
- AU Small Finance Bank offers a 7.1% interest rate on 3 to 4-year USD FCNR(B) deposits.
- HDFC Bank and Central Bank of India offer up to 6% on 3 to 5-year FCNR(B) deposits.
- An investment of $10,000 in a 5-year FCNR(B) deposit could yield an additional $1,277 in interest.
Indian banks are sharply increasing interest rates on foreign currency deposits for Non-Resident Indians (NRIs) and similar categories, aiming to attract dollar inflows and strengthen the rupee. This move follows recent measures by the Reserve Bank of India (RBI) to boost capital. The government will now cover hedging costs for new Foreign Currency Non-Resident (Bank) Deposit (FCNR(B)) accounts with maturities of three to five years until September 30, 2026. This allows banks to offer higher yields, with some, like AU Small Finance Bank and Yes Bank, offering up to 7.1% on five-year deposits, while HDFC Bank and Central Bank of India offer up to 6%. The government bearing hedging costs is expected to increase NRI earnings significantly, potentially adding $1,277 on a $10,000 investment. A key feature of the RBI's scheme is the removal of restrictions on issuing letters of credit against these deposits, enabling a leverage play that could amplify inflows. India Ratings forecasts these measures could generate $60–70 billion in inflows, supporting the rupee and easing funding pressures. This strategy revives a playbook used successfully in 2013 to stabilize the currency during turbulent emerging market periods.