The Reserve Bank of India (RBI) temporarily lifted interest rate ceilings on Non-Resident External (NRE) and Foreign Currency Non-Resident (Bank) [FCNR(B)] deposits.
This relaxation applies to deposits of three years and above, effective from June 17, 2026, until September 30, 2026.
The primary aim is to attract greater capital inflows into India and help stabilize the Indian rupee.
The measure also covers NRE and FCNR(B) deposits that are renewed upon maturity.
Detailed Insights:
NRE accounts allow non-residents to deposit foreign currency, maintained in Indian rupees, with full repatriability of principal and interest.
The RBI had previously introduced a concessional foreign exchange swap facility for FCNR(B) deposits until September 30, 2026, to encourage External Commercial Borrowings (ECBs).
This policy effectively lowers hedging and funding costs for banks, enabling them to raise cheaper foreign currency funds.
Banks have started offering higher interest rates on FCNR(B) deposits, with some rates reaching around 7%.
Estimates suggest potential inflows of $30-50 billion from this scheme in CY26, expected to materialize by Q3 (July-September).
Transfers from Non-Resident Ordinary (NRO) accounts to NRE accounts will not qualify for this specific interest rate exemption.
Key Concepts Involved:
Non-Resident External (NRE) Account: A bank account in India for non-residents to deposit foreign earnings, fully repatriable.
Foreign Currency Non-Resident (Bank) [FCNR(B)] Deposit: A term deposit account maintained in foreign currency by non-residents in India.
Capital Inflows: The movement of money into a country from foreign sources, often for investment or to stabilize currency.
External Commercial Borrowings (ECBs): Loans raised by eligible resident entities from recognized non-resident entities.