According to reports, Indian banks are seeking clarity from central banks on whether they can lend to NRIs who want to put their dollars in Foreign Currency Non-Resident FCNR(B) deposits in India. This will happen through leveraging, which allows NRIs to multiply their returns significantly.

But first, what’s it all about? On May 8, the central bank announced a US Dollar-Rupee Forex Swap Facility for newly raised FCNR(B) deposits by banks. What this means is that banks can now offer higher rates to NRIs without worrying about the INR-USD exchange rate. The RBI has introduced a mechanism to fully cover currency risk on dollar deposits raised by Indian banks.

Before this new RBI scheme, banks were offering around 3.5%–4% on Foreign Currency Non-Resident FCNR(B) deposits from NRIs. Now, several banks have already announced upward revisions, with most offering around 6-6.5%, and a few up to 7%. Most big banks have raised their FCNR rates to around 6%. The new higher rates will be valid only on deposits of above 3 years and up to 5 years.

As NRIs in the US earn around 4% yields on deposits between 3–5 years, keeping funds in Indian banks as FCNR deposits could let them earn at least 1.5%–2% higher interest.

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Leverage — the bigger opportunity, but with a catch

On top of the higher rates, there is leverage that can help NRIs earn even more on their deposits. In financial markets, leverage means borrowing funds to take a larger position to earn a higher return, after accounting for the cost of borrowed capital.

“The bigger opportunity attracting attention is leverage. Some NRIs are exploring arranging credit lines from overseas banks at lower rates and deploying the borrowed funds into higher-yielding FCNR deposits. If executed prudently, this could significantly enhance returns over the deposit rate, but it comes with its own risks, the biggest being a change in borrowing rates or early recall of loan,” says Ankur Choudhary, Co-Founder and Chief Executive Officer at Belong, GIFT city’s first investing platform for NRIs.

Effectively, using leverage, an NRI with $100 can borrow ( at a cost) another $900 from the bank and park $1,000 in the FCNR deposit.

A Jefferies report suggests that NRIs can enhance returns on FCNR(B) deposits by utilising borrowed funds. With the RBI covering the hedging cost entirely, Jefferies estimated that “with 7–10x leverage and spread of 1.5–2%, customers can generate 17–27% US$-IRR annually over 3–5 years.” RBI is open to banks providing Standby Letters of Credit (SBLCs) that can help depositors leverage their capital, notes Jefferies.

Why leveraging may not work in 2026

In 2013, RBI floated a somewhat similar scheme, with a maximum hedge of 3.5%, in which several NRIs made use of the leverage mechanism to park more funds with Indian banks. Banks in 2013 were permitted to extend loans to the FCNR (B) account holders and mark a lien on such deposits.

At that time, the difference in interest rates between the US and India was significant. The yield on a three-year Indian government bond was approximately 8.9%, while the yield on a three-year US Treasury bond was 0.9% — resulting in an interest rate gap of 8%. That wide gap made leveraging highly attractive, and Indian banks’ foreign branches offered an overdraft secured by a dollar deposit to be parked in an Indian branch in FCNR(B).

This time, however, the rate gap has narrowed considerably. “The interest rate gap has narrowed significantly, reducing the possibility of leverage 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. Soumya Kanti Ghosh, Group Chief Economic Adviser, State Bank of India, in the SBI Research Ecowrap report.

Another emerging factor is the likelihood of an interest rate hike in the US. With inflation making a comeback in the US, the US Fed is expected to keep rates unchanged at 3.5% -3.75% in next week’s FOMC meeting. Markets are expecting a rate hike in December if inflation remains sticky and oil prices continue to stay higher.

While leverage remains an option on paper, the narrower interest rate gap may limit how aggressively it is used this time around.

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New FCNR rates

Banks, including SBI, HDFC, ICICI, PNB, Bank of Baroda, and AU Small Finance Bank, have already announced new, higher rates on their FCNR(B) deposits. With US yields at 4.25%–4.5% for three years, NRIs parking funds in Indian banks’ FCNR(B) deposits can earn an additional return of around 2%.

FCNR(B) deposits are different from NRE or NRO accounts in that they are held in foreign currency. Interest is payable either semi-annually or at maturity in the deposit currency. Both the principal and interest are fully protected from rupee depreciation, and the proceeds can be fully repatriated. FCNR accounts may be jointly held by NRIs or with resident close relatives, and they come with a nomination facility.

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.