RBI temporarily removes interest rate caps on NRE and FCNR(B) deposits until September 2026

The Reserve Bank of India (RBI) has temporarily lifted the interest rate ceilings on certain non-resident deposit schemes to encourage capital inflows and support the Indian rupee. The relaxation applies to fresh and renewed Non-Resident External (NRE) deposits with tenors of three years and above, as well as Foreign Currency Non-Resident (Banks) [FCNR(B)] deposits of three to five years. The move is effective from June 17, 2026, and will remain until September 30, 2026, according to an RBI notification.

The central bank clarified that any transfer from a Non-Resident Ordinary (NRO) account to an NRE account will not qualify for this exemption. NRE accounts allow depositors to hold foreign currency in Indian rupees, with both principal and interest freely repatriable abroad. This flexibility is expected to attract more inflows, according to bank officials.

Data from the RBI shows that outstanding NRE deposits were $7.94 billion in 2025-26, while FCNR(B) deposits stood at $946 million. As part of broader efforts to stabilize the currency, the RBI had earlier announced a concessional foreign exchange swap facility on FCNR(B) deposits until September 30, 2026, aimed at reducing hedging and funding costs for public sector external commercial borrowings.

Following the relaxation, several banks have raised interest rates on FCNR(B) deposits, with some offering around 7%. A report by Goldman Sachs estimates that the scheme could attract inflows of $30-50 billion in calendar year 2026, mostly by the third quarter (July-September). However, the report notes that this is lower than the $25 billion raised during a similar scheme in 2013, which then accounted for 2.2% of aggregate bank deposits. If the same penetration rate applied today, potential inflows could be $55-60 billion, but the current economic environment may limit uptake. The report points out that 15-20% of the 2013 inflows likely involved switching from existing NRE deposits, and that depositor returns are now less attractive, with U.S. funding costs around 4% compared to near 1% in 2013.

The RBI's temporary measure is part of a series of steps to manage currency volatility and ensure adequate foreign exchange inflows in the face of global headwinds. Banks are hopeful that the revised deposit rates will draw significant interest from the Indian diaspora, though the final numbers will depend on global interest rate differentials and investor sentiment.