RBI Forex Window Closing: FCNR(B) Deposit Rates to Fall

Non-Resident Indians (NRIs), Overseas Citizens of India (OCIs), and Persons of Indian Origin (PIOs) face a looming deadline for high interest rates on their Foreign Currency Non-Resident (Bank) [FCNR(B)] deposits in India. A special Reserve Bank of India (RBI) facility, which covered hedging costs, is set to close on August 31, 2026.

This crucial RBI mechanism involved a USD-INR forex swap arrangement, designed to offset the hedging expenses for banks accepting these foreign currency deposits. The facility, initially slated until September 30, 2026, was advanced due to a significant influx of US dollar deposits.

RBI Facility Success and Inflows

The RBI’s special forex swap facility has proven highly successful in attracting foreign currency into India. It mobilized substantial inflows, primarily through FCNR(B) deposits, by significantly reducing the cost for banks to offer competitive rates.

• Total foreign exchange inflows mobilized by August 21: $72.848 billion
• FCNR(B) deposits’ contribution to total inflows: $65.397 billion
• FCNR(B) share of total inflows: nearly 90%

Current FCNR(B) Deposit Rate Landscape

As of August 17, several banks are offering competitive rates for US dollar FCNR(B) deposits with tenures between three and five years, for amounts under $1 million. These rates reflect the temporary support from the RBI’s hedging cost coverage.

• IDFC FIRST Bank and IndusInd Bank: 6.75%
• Central Bank of India and Punjab National Bank: 6.60%
• Bank of Baroda, Canara Bank, and UCO Bank: 6.50%
• ICICI Bank, HDFC Bank, and Axis Bank: maximum 6.25%

Implications Post-Closure

After the August 31, 2026, closure date, the financial landscape for new 3-5-year FCNR(B) deposits is expected to shift. The removal of the special hedging-cost support will likely reduce the incentive for banks to maintain such elevated interest rates.

FCNR(B) accounts offer non-residents the benefit of holding deposits in various foreign currencies, providing tax-exempt interest in India and protection from rupee exchange-rate fluctuations. Investors should confirm the latest applicable rates and terms directly with their banks, as policies can vary by currency, tenure, and deposit size.