Why in the news
On 17 June 2026 the RBI loosened the rate rules on non-resident deposits to attract NRI money, building on its FCNR(B) swap facility launched on 8 June. Several banks soon raised their FCNR(B) rates.
Key facts
- FCNR(B): ceiling withdrawn for fresh deposits of 3 years up to 5 years.
- NRE: rate curbs lifted for fresh deposits of 3 years and above, including renewals on maturity; banks need not stay within rates on comparable domestic rupee term deposits.
- Validity: until 30 September 2026.
- Legal basis: Section 35A of the Banking Regulation Act, 1949, amending the Commercial Banks Interest Rate on Deposits Directions, 2025.
- Exception: NRO-to-NRE transfers are not covered.
Earlier ceilings
| Maturity | Ceiling |
|---|
| 3-5 years | Overnight ARR/swap rate + 350 bps (now withdrawn) |
| 1 year to under 3 years | Overnight ARR/swap rate + 250 bps (still applies) |
Bank responses and estimates
- Banks that raised FCNR(B) rates: AU Small Finance Bank 7.10%, Karur Vysya Bank 7%, CSB Bank 6.95%, Yes Bank 6.6%.
- SBI Research: USD 40-45 billion through FCNR(B), combined USD 55-65 billion in FY27.
FCNR(B) swap facility
- Covers fresh 3-5 year FCNR(B) deposits opened between 8 June and 30 September 2026.
- Banks can use the RBI swap until 16 October 2026; 1-year lock-in from opening; swaps cannot be cancelled once done.
- Deposits are exempt from CRR and SLR.
- RBI bears the full hedging cost, about 3-3.5% a year, letting banks offer 5.5-7.1% on USD FCNR(B).
- Source text notes some reports cite 5 June as the announcement date.
- Distinct from the OFCB swap: fixed 1.5% per annum for PSU ECBs and banks’ overseas borrowings.
Comparing the three account types
| Feature | FCNR(B) | NRE | NRO |
|---|
| Currency | Foreign (such as USD, GBP, EUR, JPY) | Rupee | Rupee |
| Funds from | Foreign earnings | Foreign earnings | Indian income such as rent, dividends |
| Interest | Tax-free | Tax-free | Taxable |
| Repatriation | Full | Full | USD 1 million a year |
| Exchange risk to depositor | None | Yes | Not applicable |
- FCNR(B) tenure is 1 to 5 years, for NRIs and PIOs. NRE can be savings, current or term deposit.
Alternative Reference Rates
- ARRs replaced LIBOR, phased out by 30 June 2023.
- SOFR (USD), SONIA (GBP; LIBOR ceased 31 December 2021), TONA (JPY), €STR (EUR), SARON (CHF).
Exam angle
- Section 35A, Banking Regulation Act, 1949; relaxation valid till 30 September 2026.
- Swap deposit window: 8 June to 30 September 2026.
- OFCB swap is fixed at 1.5%, unlike FCNR(B) where RBI absorbs the whole cost.