Context
The Reserve Bank of India (RBI) has temporarily relaxed interest rate restrictions on select FCNR(B) and NRE deposits and introduced a concessional swap facility to attract higher foreign currency inflows from Non-Resident Indians (NRIs). The initiative seeks to enhance foreign exchange liquidity, support the rupee, and strengthen India’s external sector resilience.
NRI Deposit Accounts: A Comparison
| Account Type
|
Currency | Primary Purpose | Tax Treatment | Repatriability |
| FCNR(B) | Foreign Currency | Foreign currency savings and investments | Interest is tax-free in India | Fully repatriable |
| NRE | Indian Rupees | Parking overseas earnings in India | Interest is tax-free in India | Fully repatriable |
| NRO | Indian Rupees | Managing income earned in India | Interest is taxable in India | Subject to prescribed conditions |
RBI’s Recent Measures
- Relaxation of Interest Rate Ceilings
- Interest rate ceilings have been withdrawn on:
-
- Fresh FCNR(B) deposits with maturities between three and five years.
- Fresh NRE deposits with maturities of three years and above.
- The relaxation will remain effective from 17 June 2026 to 30 September 2026.
- Transfers from NRO accounts to NRE accounts are not eligible for this benefit.
- Concessional Swap Facility
- Banks generally hedge FCNR(B) deposits against exchange rate fluctuations, increasing their funding costs.
- The RBI’s special swap facility lowers hedging costs by absorbing a part of the exchange rate risk.
- This enables banks to offer more attractive returns on FCNR(B) deposits and encourages higher NRI participation.
Objectives of the Measures
- Attract higher NRI deposits and foreign currency inflows.
- Strengthen foreign exchange reserves.
- Improve foreign currency liquidity in the banking system.
- Support exchange rate stability.
- Enhance resilience of the external sector.
Significance for the Economy
- Mobilises relatively stable and non-debt creating foreign capital from the Indian diaspora.
- Strengthens foreign exchange reserves, balance of payments stability, and external sector resilience.
- Enhances foreign currency liquidity within the banking system.
- Supports the rupee during periods of global financial uncertainty.
- Reduces funding pressures on banks and improves access to foreign currency resources.
- Increases the economy’s capacity to withstand external shocks and volatile capital flows.
Conclusion
The RBI’s measures reflect a proactive approach to leveraging NRI savings for strengthening India’s external sector. By attracting stable foreign currency inflows, improving liquidity conditions, and reinforcing foreign exchange reserves, the initiative can enhance macroeconomic stability and improve India’s resilience to global financial volatility.
