RBI’s New FCNR (B) Rules: Will leverage work for NRIs in 2026 the way it did in 2013?

The 2026 FCNR(B) mobilisation drive is being compared to a somewhat similar drive conducted by the RBI in 2013. At that time, almost $26 billion was mobilised specifically as FCNR(B) deposits, even after NRIs making use of the loan facility. This time, several bankers have put the estimate at between $35–$50 billion.

The numbers tell a stark story. Inflows into FCNR(B) have significantly decreased, with only $946 million received in 2025-26 compared to $7 billion in 2024-25. Notably, April 2025 saw an inflow of $272 million, which dropped to $166 million by April 2026. The sharp dip in dollar inflows could be one of the reasons why the RBI had to launch the 2026 Swap Facility for FCNR(B) Deposits scheme.

Is Leveraging a Good Deal Now?

Not many industry experts are giving ‘leveraging’ an easy way out for NRIs in 2026. “The math on leverage has completely changed since 2013, and that is the most important fact investors need to understand,” says Sneha Pandey, Fund Manager – Fixed Income, Quantum AMC.

Sneha explains why leveraging may not make sense for NRIs in 2026 — Back then, with the US Federal Reserve holding rates near zero, an NRI could borrow dollars in overseas markets at roughly 1% to 1.5% and place those funds into FCNR deposits yielding 5.5% to 6%. The resulting 400+ bps spread created one of the cleanest macro arbitrage opportunities available at the time. With 5x to 10x leverage, investors could generate extraordinary dollar-denominated returns with relatively limited interest-rate risk.

Today, that equation has fundamentally broken down.

Even after the RBI’s latest deregulation and the subsequent increase in FCNR rates by several major banks, overseas borrowing costs remain dramatically higher than they were a decade ago. An NRI borrowing abroad today is typically paying somewhere between 5.5% and 6% for funding. If the FCNR deposit yields 6.5% to 7%, the spread collapses to roughly 100 bps.

For better clarity, Sneha explains with an example using simple 5x leverage:

“Say, an investor contributes $100,000 of personal capital and borrows another $400,000, creating a $500,000 FCNR deposit earning, say 7%. With a net spread of just 1%, the strategy generates roughly $5,000 of incremental profit, translating into a seemingly attractive 5% return on the investor’s own capital.

The problem is that this entire trade rests on a fragile mismatch. The FCNR deposit locks in a fixed return, while the overseas borrowing is often floating-rate. If global inflation resurfaces and borrowing costs rise by just 1%, the loan cost jumps to 7%, the entire arbitrage disappears, and the leveraged investor is suddenly carrying substantial risk for no excess return,” says Sneha.

Dr. Soumya Kanti Ghosh, Group Chief Economic Adviser, State Bank of India, also shares similar views. “In 2013, FCNR(B) mobilisation was also done using the leverage route. For example, Indian Government bond yields for a 3-year tenure were around 8.9% and while the US 3-year treasury yield was 0.9%, giving an interest differential of 8.0% in 2013.

At that time, mobilisation was done using leverage with overseas branches of Indian banks providing an overdraft against a dollar deposit to be parked at an Indian branch in FCNR(B). This option is available now also. However, the interest rate gap has narrowed significantly, reducing the possibility of leveraging this time. In the case of 3 years, the rate gap has now reduced to 2.1%, and for 5 years it has narrowed down to 2.2%, says Dr. Ghosh.

So, What Are the Options Left?

Being aware of the narrow interest rate differential, the RBI relaxed the rules further. After the June 8 announcement of taking on currency risk, on June 18, the RBI removed the ceiling on the rates that banks can offer to NRIs. However, while most banks had increased their FCNR(B) rates after the June 8 announcement, not many banks have hiked the rates further after the June 18 announcement.

Leveraging

For the scheme to succeed, banks need to offer much higher rates of interest to NRIs, who will then be able to make full use of leveraging to further enhance their returns.

NRIs can also take loans from banks — including their overseas branches — through leveraging, which is not something new for NRI investors, as they were allowed to take loans earlier too.

The RBI has, however, clarified that Indian banks, including their overseas branches, are permitted to extend loans to a non-resident or issue a Standby Letter of Credit (SBLC) in favour of overseas lenders, against FCNR(B) deposits mobilised under the scheme.

GIFT City banks are not allowed to route FCNR(B) deposits; however, they can offer loans to NRI investors. “GIFT City banks are technically overseas banks. Only Indian mainland banks can take FCNR deposits. GIFT City banks can extend loans to NRIs to take advantage of higher returns with leveraged FCNR deposits,” says Ankur Choudhary, Co-Founder and CEO at Belong.

Takeaway

The RBI’s new rules allowing Indian banks to offer higher rates of interest to NRIs — without worrying about currency risk — are yet to get off the blocks in a big way.

The RBI has asked banks to report data on dollar deposits on a daily basis starting June 22 under the newly announced Swap Facility for FCNR(B) Deposits. This data is yet to be released to the public.

The RBI has already announced two measures to let banks attract NRI dollars to India. Firstly, on June 8, under the Swap Facility for FCNR(B) Deposits, the RBI agreed to hedge the Indian rupee’s depreciation against the dollar, thus letting banks avoid the currency hit. However, the RBI will hedge only the principal and not the interest. On June 18, the RBI removed the ceiling, thus allowing banks to offer higher rates of interest to NRIs.

Will leveraging help NRIs earn better returns and banks garner more deposits? “The 2013 trade was built on a wide spread and cheap money. The 2026 version is built on thin spreads, floating-rate liabilities, and significant leverage. What was once a powerful macro arbitrage has evolved into an asymmetric risk trade.

The banks and the broader financial system benefit from the inflows, while the investor absorbs most of the leverage risk. That is why the modern leveraged FCNR trade should not be viewed as a free lunch. It is a high-conviction macro bet disguised as a deposit product,” adds Sneha.

Disclaimer: This article is for informational purposes only and does not constitute financial, investment, or legal advice. Data and estimates cited are sourced from publicly available reports and expert statements. Interest rates and scheme terms are subject to change as per RBI guidelines. Readers are advised to consult a qualified financial advisor before making any investment decisions.