Non-Resident Indians may soon have the opportunity to earn a higher rate of interest on their dollar deposits with Indian banks. In a significant move over just 10 days, the RBI has further eased regulations, allowing banks to offer greater interest rates to Non-Resident Indians (NRIs).
In the first step, the RBI assumed the currency risk that banks would be exposed to on its own books, thereby hedging banks from the INR’s depreciation against the USD. Now, in a second and more far-reaching move, the central bank has removed the upper limit on the interest rate banks can offer on NRI dollar deposits.
Why Is This Move So Significant?
“Honestly, the RBI’s decision to remove the FCNR(B) interest rate ceiling is far more significant than a simple deposit-rate liberalization… I believe it is a calculated macro intervention designed to weaponize the balance sheets of Indian banks in defence of the rupee and India’s external account,” says Sneha Pandey, Fund Manager – Fixed Income, Quantum AMC.
The full industry impact of the June 17 relaxation is yet to play out. As of May 27, the Overnight Alternative Reference Rate was 3.63%, which would have capped the rate on FCNR(B) 3-5 year deposits at 7.1%. With that restriction now gone, banks, including India’s largest lenders, may consider offering significantly higher interest rates on dollar deposits.
What Has Changed in FCNR(B) Deposits
Earlier, rules restricted banks from offering higher rates on FCNR(B) deposits by capping them at the Overnight Alternative Reference Rate for the respective currency/swap, plus 350 basis points, for 3-5 year deposits.
The amended direction states: the interest rate ceiling applicable to fresh FCNR(B) deposits mobilised by banks, including deposits renewed upon maturity, for 3-5 year tenure, is temporarily withdrawn with effect from June 17, 2026, for the period until September 30, 2026.
Will Rates Cross 7% Now?
“Absolutely! In fact, some banks may temporarily push beyond that threshold for specific currencies and tenors. However, it’s not who offers the highest rate, but who attracts the largest volume. And historically, NRI money largely gravitates toward safety, scale and accessibility. So a 25-50 bps premium from a smaller bank rarely outweighs the confidence investors place in a large institution with a global footprint,” says Sneha.
One of the first banks to make use of the removal of the ceiling on rates is Punjab National Bank (PNB). After the June 8 rule change, PNB offered 6.1% effective June 11, while from June 18, the bank has further hiked the rates on FCNR(B) deposits to 6.5% on 5-year deposits for USD 1 million and less. For 1 Million and Above, the rate has been set at 6.6%.
Who Stands to Benefit Most?
“The immediate reaction will be a race for NRI capital, but this is not a race where all banks start equally. The clear winners are the large-cap institutions (SBI, HDFC, ICICI etc.) and a handful of other major lenders with deep overseas networks and entrenched NRI relationships. These banks now have the freedom to aggressively build long-duration foreign currency liabilities without being constrained by regulatory pricing caps,” adds Sneha.
The Backstory: A Series of Moves
This latest relaxation builds on an earlier move. On June 8, the RBI introduced a US Dollar-Rupee Forex Swap Facility for fresh FCNR(B) deposits, mobilised for a minimum tenor of three years and a maximum tenor of five years. At that time, however, a restriction remained in place — banks were free to price these deposits as per their internal policy, but within the overall ceiling set by RBI guidelines.
The impact was immediate. Most banks announced higher rates on their FCNR(B) deposits. While bigger banks like SBI, HDFC, and ICICI, among others, raised rates to a range of 6-6.5% on 3-5 year deposits, smaller banks pushed rates to slightly over 7%.
What About NRE and NRO Deposits?
The RBI has also eased rules around NRE deposits. Earlier, rules restricted banks from offering higher rates on NRE/NRO deposits compared to comparable domestic rupee deposits. The RBI rule stated: interest rates on NRE/NRO deposits shall not be higher than those offered by the bank on comparable domestic rupee term deposits.
The amended direction removes this restriction — but only for NRE deposits of three years and above. The said restriction, with respect to interest rates offered on fresh NRE deposits mobilised by banks — including deposits renewed upon maturity — for three years and above tenors, is temporarily withdrawn with effect from June 17, 2026, for the period until September 30, 2026.
In the NRO account, income earned in India (in Rupees) — such as rent, pension, and dividends — can be deposited. However, any transfer from NRO accounts to NRE accounts shall not qualify for such exemption.
In the NRE account, only inward remittance of income earned overseas ( in dollars) is permitted. The dollars are converted to Indian rupees before getting parked in the NRE account. RBI’s new directive will also help banks garner higher deposits not only in FCNR(B) deposits but also in NRE accounts.
Disclaimer: This article is for general informational purposes only and does not constitute investment, financial, or tax advice. RBI guidelines on FCNR(B) and NRE deposit interest rates are subject to change and are currently applicable only for a temporary period until September 30, 2026. Interest rates offered by individual banks may vary and are subject to change without notice. Readers are strongly advised to consult their bank or a qualified financial advisor before making any deposit decisions related to NRI accounts.