RBI Removes Rate Cap On Select FCNR-B Deposits To Boost Foreign Inflows

The Reserve Bank of India (RBI) has temporarily withdrawn the interest rate ceiling on fresh three-year and five-year Foreign Currency Non-Resident Bank [FCNR(B)] deposits until September 30, 2026, as part of changes announced under its revised deposit interest rate framework.

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The central bank also removed restrictions on interest rates applicable to Non-Resident External (NRE) deposits with maturities of three years and above, including deposits renewed upon maturity. According to the RBI, the revised provisions have come into force with immediate effect.

The relaxation forms part of a broader effort to encourage foreign currency inflows into the country and strengthen the capital account.

Existing Norms For NRE And NRO Deposits Remain

The RBI clarified that interest rates on NRE and Non-Resident Ordinary (NRO) deposits cannot exceed the rates offered by banks on comparable domestic rupee term deposits.

For deposits with maturities of one year to less than three years, banks can offer rates up to 250 basis points above the overnight alternative reference rate. For deposits with tenures between three and five years, the ceiling had been fixed at 350 basis points above the reference rate.

The latest measures suspend these limits for fresh three-year and five-year FCNR(B) deposits and for NRE deposits of three years and above until September 30, 2026.

Measures Follow RBI’s Push For Capital Inflows

Earlier this month, the central bank unveiled a series of steps to attract overseas funds. These included hedging support for fresh three-year and five-year FCNR(B) deposits and a concessional swap window for external commercial borrowings raised by public sector undertakings.

According to estimates, the package of measures could help bring in as much as $50 billion in additional inflows over the coming months, providing support to India’s external balances.

Banks Raise Deposit Rates

Following the RBI’s initiatives, several lenders have revised their FCNR(B) deposit offerings to attract overseas deposits. Public and private sector banks, including Yes Bank, Bank of Baroda and Canara Bank, have increased interest rates on FCNR(B) deposits to as much as 7%.

FCNR(B) deposits allow non-resident Indians to maintain foreign currency deposits in India without being exposed to exchange rate fluctuations. The latest relaxation is expected to give banks greater flexibility in pricing these deposits and may help increase foreign currency resources available to the banking system.

The temporary easing will last until September 30, 2026, after which the RBI is expected to review the framework in line with market conditions and capital flow requirements.