Major domestic banks are facing a tricky situation in their bid to attract fresh Foreign Currency Non-Resident (Bank) deposits under the RBI's recent measures to stabilise the rupee. Depositors with existing FCNR(B) deposits may prematurely close them and roll-over proceeds into fresh deposits to benefit from higher interest rates that banks are currently offering for a limited period. According to bankers, about 30% of existing FCNR(B) deposits may be prematurely closed and rolled over into fresh deposits, with the lure of 200-300 basis points increase in interest rates more than compensating any loss of interest due to premature closure. As per RBI directions, no interest is payable on a FCNR(B) deposit if it is closed before one year, though banks usually pay interest for the period the deposit has run instead of the contracted rate.
Banks have sharply upped interest rates on FCNR(B) USD deposits recently in the 3-5 year tenor, with rates increased to 6-7% from the earlier 3% levels. ICICI Bank launched a new FCNR(B) deposit scheme offering 6.50% interest on NRI fixed deposits effective June 11, joining several lenders seeking to attract foreign currency inflows under the RBI's special swap facility. State Bank of India (SBI) announced a new SBI Advantage FCNR(B) deposit scheme available in USD for 3-5 year tenure with a lock-in period of 1 year, offering 6% interest for 5-year deposits, 5.75% for 4-5 year deposits, and 5.5% for deposits above $1 million in the 3-4 year tenor. Bank of Baroda (BoB) is offering up to 6% on USD deposits, 4.75% on GBP and AUD deposits, 5.15% on CAD deposits and 3.75% on Euro deposits across major foreign currencies. Kotak Mahindra Bank maintains its 6.15% rate for deposits above $1 million and 6% for deposits below $1 million, while AU Small Finance Bank increased its peak USD deposit rate from 5.15% to 7.10% effective June 10, 2026.
State Bank of India (SBI) has implemented the most comprehensive rate structure across all FCNR(B) tenors, significantly improving returns for depositors. On FCNR(B) deposits of up to $1 million and above $1 million in the three years and above but less than four years tenor, SBI is now offering interest rates of 5.25% and 5.50% respectively, compared to the earlier rate of 3.35%. For deposits of up to $1 million and above $1 million in the four years and above but less than five years tenor, SBI is quoting interest rates of 5.50% and 5.75% respectively, up from the earlier rate of 2.95%. On FCNR(B) deposits of up to $1 million and above $1 million of five years tenor, SBI is offering interest rates of 5.75% and 6% respectively, compared to the earlier rate of 3.05%. As per K Arvind, Head – Treasury at Tamilnad Mercantile Bank (TMB), "The RBI's move to attract dollars via FCNR(B) deposits is a win-win for all stakeholders – depositors, banks and RBI. Depositors will get better returns, banks' deposits will be augmented at a time when credit growth is healthy and the central bank could achieve its objective of reducing volatility in the rupee."
SBI economists expect around $40-45 billion to come in through the FCNR(B) deposits route, providing a meaningful buffer to the rupee while easing broader funding pressures within the financial system. Within the overall non-resident deposits of banks, the outstanding under FCNR(B) deposits category nudged up about 3% year-on-year to stood at $33.756 billion as at March-end 2026 against $32.809 billion as at March-end 2025, as per RBI data. However, inflows into these deposits were sharply lower at $946 million in FY26 against $7.076 billion in FY25. India Ratings expects the arrangement to generate between $60–70 billion, providing a meaningful buffer to the rupee while easing broader funding pressures within the financial system. Barclays said $25 billion-$30 billion of FCNR inflows is a reasonable base-case estimate over the next few months, while MUFG Bank has pencilled in $20 billion of funds coming through this route as its base-case estimate.
Expected FCNR(B) inflows could help domestic banks narrow the credit-deposit growth gap, which had widened to more than 550 basis points by the end of May. According to a senior banker at a large private sector bank, "Since these deposits do not carry the requirements of the cash reserve ratio or statutory liquidity ratio, they can lower the cost of funds. As wholesale deposits mature, banks may choose not to renew them and instead replace them with deposits under the Foreign Currency Non-Resident (Bank), or FCNR(B), deposits. That improves balance-sheet efficiency." Market rates have begun to reflect expectations of stronger liquidity, with certificates of deposits (CD) rates falling below 7% as banks raise funds through FCNR(B) deposits. A mid-sized private banker noted that "Once banks raise funds, they can either use them for incremental lending or replace existing high-cost liabilities. The easiest liabilities to replace are high-value deposits raised at premium rates and CDs. As a result, both CD rates and high-value deposit rates should come down, which will help margins by lowering funding costs."
