The Reserve Bank of India (RBI) has announced a major relaxation that could benefit Non-Resident Indians (NRIs) looking to park their money in India.
To attract more foreign currency into the country, the RBI has temporarily removed interest rate restrictions on certain NRE and FCNR(B) deposits.
The move is expected to encourage banks to offer higher returns and attract more overseas funds.
The new rules will remain in effect until September 30.
What Has RBI Changed?
Under the revised guidelines, banks can now offer higher interest rates on fresh Non-Resident External (NRE) deposits with a maturity of three years or more.
The RBI has also removed the interest rate cap on fresh Foreign Currency Non-Resident [FCNR(B)] deposits with maturities ranging from three to five years.
The relaxation will apply to:
- New deposits opened during the period
- Eligible deposits renewed after maturity
This gives banks greater freedom to decide the interest rates they want to offer to NRI customers.
Why Is This Important for NRIs?
Earlier, banks could not offer NRE deposit rates higher than comparable domestic fixed deposit rates.
Similarly, FCNR(B) deposit rates were subject to limits set by the RBI.
With these restrictions removed, banks are now expected to compete aggressively for NRI deposits by offering more attractive interest rates.
Experts believe smaller banks may offer even higher rates than larger banks because they often provide better returns to attract depositors.
Interest Rates May Become More Attractive
Some banks have already increased rates on US dollar-denominated FCNR(B) deposits.
According to market estimates, interest rates on these deposits have moved to around 6% to 7% for three-to-five-year tenures, compared to roughly 3% earlier.
If competition among banks increases further, NRIs could see even more attractive deposit offers in the coming months.
Why Has RBI Taken This Step?
The RBI’s decision comes at a time when policymakers are looking to strengthen foreign exchange reserves and increase dollar inflows into the country.
Global uncertainties, rising oil prices, and volatility in international markets have increased the need for stronger foreign currency inflows.
To support this effort, the RBI had earlier announced a special facility under which it will bear the full hedging cost on fresh FCNR(B) deposits with maturities between three and five years until September 30.
This makes such deposits even more attractive for overseas investors.
How Could This Benefit India?
Bankers believe the move could bring billions of dollars into the Indian banking system over the next few months.
Higher foreign currency inflows can help:
Strengthen the rupee
Improve foreign exchange reserves
Increase banking system liquidity
Support lending and credit growth
The measure is also expected to improve India’s ability to deal with global economic uncertainties.
One Important Restriction Remains
While banks have been given greater flexibility, the RBI has clarified that funds transferred from Non-Resident Ordinary (NRO) accounts to NRE accounts will not qualify for this special exemption.
Apart from this condition, banks are free to set deposit rates according to their business requirements and market competition.
A Strategy That Has Worked Before
This is not the first time the RBI has used such a strategy.
A similar move was introduced in 2013, when India faced pressure on its external sector.
At that time, special FCNR(B) deposit schemes helped attract large foreign currency inflows and supported the rupee.
Although the current situation is less severe, the RBI appears keen to strengthen India’s financial position before global risks increase further.
For many NRIs, the combination of higher interest rates, protection from currency fluctuations, and RBI support measures could make FCNR(B) and long-term NRE deposits some of the most attractive savings options available right now.
