Banks are rolling out higher interest rates on foreign currency deposits for non-resident Indians (NRIs), with some offering as much as 7.1 per cent on five-year dollar deposits just days after the Reserve Bank of India (RBI) unveiled a special facility aimed at attracting foreign currency inflows.
The move marks the first tangible outcome of RBI’s June 8 decision to introduce a special swap window for fresh Foreign Currency Non-Resident (Bank), or FCNR(B), deposits. The facility allows banks to raise foreign currency deposits at a lower cost, creating room to offer more attractive returns to overseas Indians.
According to data compiled by Bloomberg, Yes Bank and AU Small Finance Bank are offering 7.1 per cent on five-year dollar deposits. Larger lenders, including State Bank of India, HDFC Bank and Central Bank of India, are offering rates of up to 6 per cent for similar tenures.
The rates are notably higher than returns available on comparable US government securities. Five-year US Treasury notes currently yield around 4.3 per cent, meaning some Indian banks are offering a premium of nearly three percentage points to attract NRI funds.
Why have rates risen?
The increase follows the RBI’s decision to introduce a US dollar-rupee swap facility for fresh FCNR(B) deposits mobilised between June 8 and September 30, 2026.
Under the scheme, banks can swap eligible dollar deposits with RBI at the prevailing reference rate and buy them back at the same rate when the deposit matures. The facility effectively reduces the cost of hedging currency risk, allowing banks to pass some of the benefit to depositors. The central bank has said banks will remain free to determine deposit rates under their internal policies and existing regulatory limits.
The RBI circular allows banks to mobilise fresh FCNR(B) deposits with tenures ranging from three to five years. Deposits under the scheme carry a one-year lock-in period, although banks may permit premature withdrawals after that period according to their internal policies.
Smaller banks offering higher rates
The gap between rates offered by large and smaller lenders reflects differences in their ability to attract NRI deposits.
“Larger, well-established banks already benefit from a sizable NRI deposit base, and therefore face less pressure to raise rates aggressively,” Madhavi Arora, economist at Emkay Global Financial Services, told Bloomberg.
“In contrast, smaller banks need to attract and build a new NRI customer base, requiring them to offer a higher yield premium to remain competitive,” she said.
The trend is visible in the latest offerings, with smaller lenders leading the market while larger banks have adopted a more measured approach.
What does this mean for NRIs?
For NRIs holding idle dollar balances abroad, the newly announced rates provide the first concrete basis for evaluating the RBI-backed opportunity.
Unlike rupee deposits, FCNR(B) deposits are maintained in foreign currency. Depositors receive both principal and interest in the same currency in which the deposit was made, shielding them from direct rupee depreciation risk.
The deposits are also exempt from tax in India for eligible NRI and OCI investors, although taxation in the country of residence may still apply.
Financial planners say investors should compare the final post-tax return with alternatives such as US Treasury securities, bank certificates of deposit and money market funds before making a decision.
Part of a broader strategy
The FCNR(B) initiative forms part of a wider effort by policymakers to attract foreign capital at a time when pressure on the rupee has intensified due to elevated crude oil prices and global uncertainties.
The strategy resembles measures adopted during the 2013 taper tantrum, when RBI opened a similar swap window for FCNR(B) deposits and banks’ overseas borrowings after the rupee came under severe pressure. That programme ultimately brought in around $34 billion and helped stabilise India’s external position.
This time, policymakers appear to be using the same playbook, but with a greater focus on attracting fresh dollar inflows through market incentives rather than relying solely on intervention in the foreign exchange market.
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