{"id":107447,"date":"2026-06-10T12:46:45","date_gmt":"2026-06-10T07:16:45","guid":{"rendered":"https:\/\/vajiramandravi.com\/current-affairs\/?p=107447"},"modified":"2026-06-10T12:47:25","modified_gmt":"2026-06-10T07:17:25","slug":"fcnrb-deposits","status":"publish","type":"post","link":"https:\/\/vajiramandravi.com\/current-affairs\/fcnrb-deposits\/","title":{"rendered":"FCNR(B) Deposits &#8211; Can Special Incentives Revive NRI Dollar Inflows?"},"content":{"rendered":"<h2 style=\"text-align: justify;\"><b>FCNR(B) Deposits Latest News<\/b><\/h2>\n<ul style=\"text-align: justify;\">\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">To strengthen foreign currency inflows and improve external sector liquidity, the RBI has introduced a special dispensation allowing banks to mobilise fresh FCNR(B) deposits with maturities of 3\u20135 years until September 2026.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Additionally, banks can swap these deposits with the RBI at concessional terms, effectively eliminating the cost of hedging foreign exchange risk.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Experts estimate that the move could potentially <\/span><b>attract $50\u201370 billion<\/b><span style=\"font-weight: 400;\"> in foreign capital, although its success will depend largely on the interest rates offered by banks.<\/span><\/li>\n<\/ul>\n<h2 style=\"text-align: justify;\"><b>What are FCNR(B) Deposits?<\/b><\/h2>\n<ul>\n<li><span style=\"font-weight: 400;\">Foreign Currency Non-Resident (Bank) [FCNR(B)] deposits are <\/span><b>fixed-term<\/b><span style=\"font-weight: 400;\"> deposits maintained by:<\/span>\n<ul>\n<li><span style=\"font-weight: 400;\">Non-Resident Indians (NRIs)<\/span><\/li>\n<li><span style=\"font-weight: 400;\">Overseas Citizens of India (OCIs)<\/span><\/li>\n<li><span style=\"font-weight: 400;\">Persons of Indian Origin (PIOs)<\/span><\/li>\n<\/ul>\n<\/li>\n<li><b>Key features:<\/b>\n<ul>\n<li><span style=\"font-weight: 400;\">Deposits are <\/span><b>held in foreign currencies<\/b><span style=\"font-weight: 400;\"> such as the US Dollar (USD), Pound Sterling (GBP), Euro (EUR), Japanese Yen (JPY), Australian Dollar (AUD), and Canadian Dollar (CAD).<\/span><\/li>\n<li><span style=\"font-weight: 400;\">Such deposits protect depositors from exchange-rate fluctuations.<\/span><\/li>\n<li><span style=\"font-weight: 400;\">Interest earned is <\/span><b>exempt <\/b><span style=\"font-weight: 400;\">from income tax in India for eligible non-residents.<\/span><\/li>\n<li><span style=\"font-weight: 400;\">Interest rates are linked to international benchmark rates.<\/span><\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<h2 style=\"text-align: justify;\"><b>Reasons Behind Introducing New Facility<\/b><\/h2>\n<ul>\n<li><b>Sharp decline in FCNR(B) inflows:<\/b>\n<ul>\n<li><span style=\"font-weight: 400;\">FCNR(B) inflows fell by 86% in FY26, and fresh inflows dropped to $946 million from $7.1 billion in FY25.<\/span><\/li>\n<li><span style=\"font-weight: 400;\">Outstanding FCNR(B) deposits stood at $33.8 billion at the end of March FY26.<\/span><\/li>\n<li><span style=\"font-weight: 400;\">The decline reflects &#8211; expiry of earlier regulatory incentives, lower returns compared to overseas deposit options, and strong competition from US dollar deposits abroad.<\/span><\/li>\n<\/ul>\n<\/li>\n<li><b>RBI\u2019s objective:<\/b>\n<ul>\n<li><span style=\"font-weight: 400;\">To boost foreign currency inflows.<\/span><\/li>\n<li><span style=\"font-weight: 400;\">Strengthen forex reserves and external sector resilience.<\/span><\/li>\n<li><span style=\"font-weight: 400;\">Provide banks with a cheaper source of overseas funding.<\/span><\/li>\n<li><span style=\"font-weight: 400;\">Enhance liquidity without significantly increasing borrowing costs.<\/span><\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<h2 style=\"text-align: justify;\"><b>Reasons for FCNR(B) Deposits Currently Being Less Attractive<\/b><\/h2>\n<ul>\n<li><b>Lower interest rates offered by Indian banks:<\/b>\n<ul>\n<li><b>For example<\/b><span style=\"font-weight: 400;\">, SBI offers 3.35% [3\u20134 years FCNR(B) rate], HDFC bank offers 3.65%, and ICICI bank offers 3.0%.<\/span><\/li>\n<li><span style=\"font-weight: 400;\">In contrast, SBI offers about 6.3% on comparable domestic fixed deposits. HDFC and ICICI offer around 6.5% on rupee deposits.<\/span><\/li>\n<\/ul>\n<\/li>\n<li><b>Competition from overseas markets:<\/b>\n<ul>\n<li><span style=\"font-weight: 400;\">US dollar deposits abroad provide higher returns.\u00a0<\/span><\/li>\n<li><b>For example<\/b><span style=\"font-weight: 400;\">, Merrick bank offers ~4.2% annualised percentage yield (APY), Morgan Stanley offers ~4.3% APY, and SBI&#8217;s US Certificate of Deposit (CD) offers ~3.85%.<\/span><\/li>\n<li><span style=\"font-weight: 400;\">Therefore, <\/span><b>unless <\/b><span style=\"font-weight: 400;\">Indian banks <\/span><b>raise <\/b><span style=\"font-weight: 400;\">FCNR(B) rates by around 100 basis points (1%), NRIs may have little incentive to transfer funds to India.<\/span><\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<h2 style=\"text-align: justify;\"><b>Working of RBI\u2019s New Swap Facility<\/b><\/h2>\n<ul>\n<li><b>Concessional hedging support:<\/b><span style=\"font-weight: 400;\"> The RBI has allowed banks to swap FCNR(B) deposits with the central bank at concessional terms.<\/span><\/li>\n<li><b>Mechanism:<\/b>\n<ul>\n<li><span style=\"font-weight: 400;\">Banks sell US dollars to the RBI and simultaneously agree to buy them back at maturity.<\/span><\/li>\n<li><span style=\"font-weight: 400;\">Swap transactions will occur at the same exchange rate in both legs.<\/span><\/li>\n<li><span style=\"font-weight: 400;\">The swap is undertaken at par, removing exchange-rate risk.<\/span><\/li>\n<\/ul>\n<\/li>\n<li><b>Operational conditions:<\/b>\n<ul>\n<li><span style=\"font-weight: 400;\">Facility available for deposits mobilised up to September 30, 2026.<\/span><\/li>\n<li><span style=\"font-weight: 400;\">The swap window remains open until October 16, 2026.<\/span><\/li>\n<li><span style=\"font-weight: 400;\">Banks may access the facility once every week.<\/span><\/li>\n<li><span style=\"font-weight: 400;\">Minimum transaction size: <\/span><b>$1 million<\/b><span style=\"font-weight: 400;\">.<\/span><\/li>\n<li><span style=\"font-weight: 400;\">Settlement is based on the FBIL Reference Rate.<\/span><\/li>\n<\/ul>\n<\/li>\n<li><b>Significance: <\/b><span style=\"font-weight: 400;\">The arrangement <\/span><b>transfers <\/b><span style=\"font-weight: 400;\">most of the hedging burden from banks to the RBI, reducing costs and enabling banks to offer more competitive FCNR(B) rates without hurting profitability.<\/span><\/li>\n<\/ul>\n<h2 style=\"text-align: justify;\"><b>Additional Regulatory Relaxations<\/b><\/h2>\n<ul style=\"text-align: justify;\">\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">To encourage mobilisation of foreign currency deposits, RBI has also exempted these deposits from:<\/span>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><b>Cash Reserve Ratio (CRR)<\/b><span style=\"font-weight: 400;\">: Portion of deposits banks must maintain with RBI as cash reserves.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><b>Statutory Liquidity Ratio (SLR)<\/b><span style=\"font-weight: 400;\">: Portion of deposits maintained in liquid assets such as cash, gold, or government securities.<\/span><\/li>\n<\/ul>\n<\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">These exemptions improve banks\u2019 deployable resources and lower the cost of raising FCNR(B) funds.<\/span><\/li>\n<\/ul>\n<h2 style=\"text-align: justify;\"><b>Trends in NRI Deposits During FY26<\/b><\/h2>\n<ul>\n<li><b>Overall NRI deposit flows<\/b><span style=\"font-weight: 400;\">: Total NRI deposit inflows declined to $14.41 billion from $16.16 billion in FY25.<\/span><\/li>\n<li><b>NRI deposits comprise:<\/b><span style=\"font-weight: 400;\"> FCNR(B) deposits, Non-Resident External (NRE) accounts, and Non-Resident Ordinary (NRO) accounts.<\/span><\/li>\n<li><b>Shift towards rupee deposits:<\/b>\n<ul>\n<li><span style=\"font-weight: 400;\">Despite the fall in FCNR(B) inflows, NRIs increasingly preferred rupee-denominated deposits.<\/span><\/li>\n<li><b>NRE deposits<\/b><span style=\"font-weight: 400;\">: Outstanding balances increased by $7.94 billion. Total outstanding reached $98.56 billion.<\/span><\/li>\n<li><b>NRO deposits: <\/b><span style=\"font-weight: 400;\">Increased by $5.53 billion. Outstanding balances reached $33.33 billion.<\/span><\/li>\n<li><span style=\"font-weight: 400;\">Consequently, total outstanding NRI deposits rose marginally from $164.68 billion to $165.65 billion.<\/span><\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<h2 style=\"text-align: justify;\"><b>Conclusion<\/b><\/h2>\n<ul style=\"text-align: justify;\">\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">The RBI\u2019s FCNR(B) deposit scheme represents a <\/span><b>targeted <\/b><span style=\"font-weight: 400;\">external-sector intervention aimed at attracting foreign currency resources and strengthening financial stability.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">The success of the initiative will ultimately depend on whether lenders can offer sufficiently attractive returns to compete with global dollar deposit markets and revive NRI participation.<\/span><\/li>\n<\/ul>\n<p style=\"text-align: justify;\"><b>Source: <\/b><a href=\"https:\/\/indianexpress.com\/article\/explained\/explained-economics\/fcnrb-deposits-rbi-swap-scheme-rates-nri-inflows-10731940\/\" target=\"_blank\" rel=\"nofollow noopener\"><b>IE<\/b><\/a><\/p>\n","protected":false},"excerpt":{"rendered":"<p>The RBI has introduced a special dispensation allowing banks to mobilise fresh FCNR(B) deposits with maturities of 3\u20135 years until September 2026. <\/p>\n","protected":false},"author":19,"featured_media":107445,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[18],"tags":[8048],"class_list":{"0":"post-107447","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-upsc-mains-current-affairs","8":"tag-fcnrb-deposits","9":"no-featured-image-padding"},"acf":[],"_links":{"self":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/posts\/107447","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/users\/19"}],"replies":[{"embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/comments?post=107447"}],"version-history":[{"count":4,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/posts\/107447\/revisions"}],"predecessor-version":[{"id":107505,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/posts\/107447\/revisions\/107505"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/media\/107445"}],"wp:attachment":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/media?parent=107447"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/categories?post=107447"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/tags?post=107447"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}