The Reserve Bank of India has revived measures from its 2013 crisis response by directing banks to attract overseas Indian funds through elevated FCNR deposit rates. Some smaller lenders have already offered above 7 percent. The program remains temporary with a firm cutoff and certain limitations.
NRIs holding dollars, pounds or euros abroad are being targeted by Indian banks seeking deposits more actively than in recent years.
In the last two days multiple major Indian banks have raised FCNR rates for NRI clients. The move follows a special RBI decision to cover currency hedging expenses that usually raise costs for banks.
This has created rate levels for NRI depositors unseen since the 2013 taper tantrum period.
On 8 June the RBI introduced a concessional dollar-rupee swap arrangement for new FCNR(B) deposits maturing in three to five years. The facility runs until 30 September 2026, with banks able to use the swap until 16 October.
Normally banks accepting dollar deposits from NRIs must hedge currency exposure, incurring costs near 2.5 percent annually. This kept typical FCNR rates between 3 and 3.5 percent.
The RBI will now cover the full hedging expense and exempt these deposits from CRR and SLR rules. Banks therefore avoid setting aside reserves, enabling them to offer higher rates.
Several banks have already adjusted rates. HDFC Bank raised its three-to-five-year rate from 3.65 percent to 6 percent. SBI increased its three-to-four-year rate up to one million dollars from 3.35 percent to 5.25 percent. AU Small Finance Bank moved from 5.15 percent to 7.10 percent. Karur Vysya Bank went from 2.63 percent to 7 percent. Yes Bank raised its rate to around 7 percent.
Additional banks are expected to follow. Larger institutions are offering between 5.25 and 6 percent while smaller lenders approach 7 percent to attract inflows.
The rupee faces pressure and India requires foreign currency. Foreign exchange reserves fell to about 681 billion dollars by late May from above 700 billion. Portfolio investors withdrew nearly 30 billion dollars from equities this year. The rupee declined around 5 percent after the West Asia conflict began in late February, raising oil import costs.
NRI deposit inflows dropped sharply. FCNR(B) inflows fell from over 7 billion dollars in FY25 to 946 million dollars in FY26. Total NRI deposits declined to 14.41 billion dollars from 16.16 billion dollars.
The approach mirrors the 2013 scheme under Raghuram Rajan that drew roughly 34 billion dollars. Analysts project the current program could bring 20 to 50 billion dollars depending on bank pricing.
SBI Research forecasts 40 to 45 billion dollars. Barclays estimates 25 to 30 billion dollars given tighter global liquidity. India Ratings suggests the wider RBI measures could draw 60 to 70 billion dollars overall.
The rates appear competitive. Returns of 6 to 7 percent on dollar deposits without currency risk compare favorably with many US savings or certificate options.
However, deposits require three-to-five-year commitments with limited early access. The RBI facility ends 30 September 2026, after which rates will likely decline. Offers differ across banks by more than 180 basis points, so comparison is advisable. Deposit insurance covers only about 5,900 dollars per depositor per bank.
