Important for UPSC Prelims: Economy
About FCNR(B) Deposits?
- FCNR(B) stands for Foreign Currency Non-Resident (Bank) Deposits.
- It is a fixed-term deposit scheme that allows Non-Resident Indians (NRIs), Overseas Citizens of India (OCIs), and eligible Persons of Indian Origin (PIOs) to maintain their savings in foreign currency with Indian banks.
- The scheme enables overseas Indians to invest in India while retaining their savings in foreign currency.
Key Features
- Foreign Currency Deposits: Deposits are maintained in designated foreign currencies such as US Dollar (USD), Pound Sterling (GBP), Euro (EUR), Japanese Yen (JPY), Australian Dollar (AUD) and Canadian Dollar (CAD).
- No Exchange Rate Risk: Unlike NRE accounts, both the deposit and repayment (principal and interest) are made in the same foreign currency, protecting depositors from rupee depreciation.
- Tax Benefit: Interest earned is exempt from income tax in India for eligible non-residents.
- Interest Rates: Linked to international benchmark rates, rather than domestic fixed deposit rates.
Objectives
- The FCNR(B) deposit scheme aims to mobilise foreign currency from overseas Indians, provide Indian banks with a stable and low-cost source of foreign funding, strengthen India’s forex reserves and external sector resilience, and offer NRIs a secure investment option without exchange-rate risk.
RBI’s New Swap Facility
- Banks mobilising FCNR(B) deposits can sell the foreign currency to the RBI and simultaneously agree to buy it back at maturity.
- The swap is conducted at the same exchange rate (at par), eliminating exchange-rate risk for banks.
- Settlement: Based on the FBIL Reference Rate.
- Availability: Deposits mobilised up to 30 September 2026; swap window open until 16 October 2026.
Why was the New Facility Introduced?
- FCNR(B) inflows declined sharply in FY26.
- Overseas banks offered higher returns on US dollar deposits, reducing the attractiveness of FCNR(B) deposits.
- The RBI aims to revive foreign currency inflows without significantly increasing banks’ borrowing costs.
| About NRI Deposits in India NRI deposits mainly consist of: FCNR(B) – Foreign Currency Non-Resident (Bank) Deposits. NRE – Non-Resident External Account. NRO – Non-Resident Ordinary Account. At the end of FY26, the total outstanding NRI deposits stood at US$165.65 billion. |
FCNR(B) vs NRE vs NRO
| Feature | FCNR(B)Foreign (Currency Non-Resident (Bank) Account) | NRE(Non-Resident External Account) | NRO(Non-Resident Ordinary Account) |
| Who can open? | NRIs/PIOs | NRIs/PIOs | NRIs/PIOs |
| Deposit Currency | Foreign Currency | Indian Rupee (INR) | Indian Rupee (INR) |
| Source of Funds | Foreign earnings remitted from abroad | Foreign earnings remitted from abroad | Income earned in India (rent, pension, dividend, etc.) and foreign remittances |
| Exchange Rate Risk | No (Deposit and repayment in same foreign currency) | Yes | Yes |
| Repatriation | Fully repatriable | Fully repatriable | Repatriation is restricted (subject to RBI rules and limits) |
| Interest | Paid in foreign currency | Paid in INR | Paid in INR |
| Used For | Holding savings in foreign currency without exchange rate risk | Maintaining overseas income in India | Managing income generated in India |
Conclusion
The FCNR(B) deposit scheme is an important external sector instrument that helps mobilise foreign exchange, strengthen forex reserves and improve financial stability, while offering overseas Indians a secure investment option without exchange-rate risk.