Several Indian banks, including Punjab National Bank (PNB), Bandhan Bank, South Indian Bank, Equitas Small Finance Bank and Bank of Baroda have moved up the interest rates on Foreign Currency Non-Resident (Bank) [FCNR(B)] deposits, where the returns have hit as high as 7.13%. The decision follows a recent hike in the interest rate cap on fresh FCNR(B) deposits made with banks by NRIs, which were being made for maturities of 3 to 5 years, by the Reserve Bank of India (RBI).

Key Highlights

• Banks raise FCNR(B) deposit rates up to 7.13% following RBI's temporary relaxation.
• Higher returns aim to attract NRI funds and boost foreign currency inflows.

The RBI's order, which is applicable till 30th September 2026, is targeting to enhance foreign currency inflows in the banking system and to improve the liquidity situation. Analysts say the easing has led to greater rivalry between banks, including smaller private and small finance banks, which have been providing much better rates than large banks.

PNB has adjusted FCNR(B) deposit rates to 6.6% per annum, on deposits of USD 1 million and above for a period of up to five years. PNB's interest rates on deposits of less than USD 1 million are up to 6.5% on both US dollar and pound sterling denominated deposits. The rates for deposits denominated in Euros are up to 4.95% and the rates for deposits denominated in Canadian and Australian dollars are up to 4.9% and 5.5% respectively.

Also Read: Private Banks Raise FCNR Deposit Rates After RBI Swap Incentive Boost

Bandhan Bank has been one of the most aggressive lenders in the segment with its FCNR(B) deposit (US dollar based) range of 7.1% interest on deposits of USD 1 million and above for a tenure of 3 years to 5 years. 

South Indian Bank has also increased its rates on US dollar FCNR(B) deposits, with the lowest rates at 6.5% per annum for 3-5-year deposits. Similarly, Equitas Small Finance Bank has updated its FCNR(B) services and seeks to attract NRIs who are looking for better returns and want to hedge against currency fluctuations.

RBI's Policy Relaxation Sparks Competition for NRI Deposits

The RBI, it is believed, has acted on the directives of smaller banks, which want more flexibility for taking foreign deposits, by temporarily lifting the cap. Before the relaxation, the rates on FCNR(B) deposits of 3-5 years duration were tied to the overnight alternative reference rates or swap rate plus 350 basis points.

The interest rate offered by smaller banks is now higher; whereas in big banks like SBI, HDFC Bank, ICICI Bank, and Axis Bank it is about 6%. The returns at AU Small Finance Bank are up to 7.1% while the CSB Bank has increased the rates by up to 290 basis points so that returns are raised at select maturities by 6.95%.

The FCNR(B) rates are likely to stay high for the next few months as banks try to attract foreign currency deposits from non-resident Indians and build foreign currency resources to meet changing global financial market conditions.