Will RBI's recent FCNR push revive NRI dollar flows after April data showed a slowdown?

The Reserve Bank of India's (RBI) latest measures to attract foreign currency deposits from non-resident Indians (NRIs) have triggered a sharp increase in FCNR(B) deposit rates, with several banks now offering returns of 6% to over 7% on US dollar deposits. However, the move comes against the backdrop of weakening inflows into these accounts, with April data showing that NRI dollar deposit momentum had slowed significantly even before the RBI stepped in.

Annual FCNR(B), deposits

According to RBI data, fresh inflows into Foreign Currency Non-Resident (Bank), or FCNR(B), deposits declined nearly 39% year-on-year to $166 million in April 2026, compared with $272 million in April 2025. The slowdown highlighted the challenges Indian banks faced in attracting NRI dollar deposits amid elevated global interest rates.

Throughout much of FY26, US interest rates remained above 4%, making it difficult for Indian banks to offer competitive returns on FCNR(B) deposits after accounting for hedging costs. Industry estimates suggest hedging expenses were close to 3.5%, limiting banks' ability to attract fresh deposits despite demand from overseas Indians for safe fixed-income products.

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Even though fresh inflows weakened, outstanding FCNR(B) balances rose from $33.08 billion in April 2025 to $33.92 billion in April 2026. Analysts believe the increase was driven largely by deposit renewals and exchange-rate valuation gains rather than strong new inflows.

Slowdown in FCNR(B) deposits

The slowdown in FCNR(B) mobilisation was also linked to market expectations that the RBI would eventually introduce a special scheme to encourage NRI dollar deposits. With the rupee facing depreciation pressure against the US dollar earlier this year, many investors anticipated policy support similar to measures announced during previous periods of currency volatility.

RBI's push

The RBI responded in June with a two-step package aimed at boosting FCNR(B) inflows. On June 8, it introduced a special swap facility under which the central bank would absorb the hedging cost on fresh three-to-five-year FCNR(B) deposits mobilised until September 30, 2026. On June 17, it removed the interest-rate ceiling on such deposits, giving banks complete flexibility to set rates.

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The response from lenders was swift. HDFC Bank, ICICI Bank, Axis Bank, Punjab National Bank, Bank of Baroda, Yes Bank and AU Small Finance Bank were among those that increased FCNR(B) rates. Some banks are now offering more than 7% on select US dollar deposits, making them among the most attractive fixed-income options available to NRIs.

How NRIs benefit

FCNR(B) deposits allow NRIs to maintain funds in foreign currencies such as the US dollar, pound sterling, euro, Japanese yen, Australian dollar and Canadian dollar. Unlike Non-Resident External (NRE) deposits, the funds are not converted into Indian rupees, eliminating exchange-rate risk. Both principal and interest remain in the original currency and are fully repatriable.

For many NRIs, particularly those based in Gulf countries where personal income tax is absent, the combination of higher interest rates, tax-free returns in India and protection from currency fluctuations has significantly improved the appeal of FCNR(B) deposits.

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However, the real impact of the RBI's measures is yet to be seen. Since the April figures predate the June policy announcements, market participants will closely monitor RBI's June and July deposit data to assess whether the higher rates succeed in reversing the slowdown and attracting fresh NRI dollar inflows into the banking system.

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