Public sector banks could see fresh inflows of $20-30 billion in Foreign Currency Non-Resident (Bank) [FCNR(B)] deposits following the Reserve Bank of India's latest measures aimed at attracting foreign currency inflows.
The RBI on Friday announced a US dollar-rupee forex swap facility for fresh FCNR(B) deposits, under which it will bear the entire hedging cost for banks raising fresh FCNR(B) deposits with maturities of three to five years until September 30, 2026.
Banking sector insiders said the current hedging cost is around 3%. With the RBI absorbing this cost, banks can potentially pass on 150-200 basis points of the benefit to depositors. Banks currently offer interest rates of around 3-3.5% on dollar-denominated FCNR(B) deposits. Under the scheme, banks can swap the dollar deposits mobilised under FCNR(B) accounts with the RBI for rupees.
According to Madan Sabnavis, Chief Economist at Bank of Baroda, the banking sector could attract an additional $10-20 billion in FCNR(B) deposits. However, he noted that the actual inflows would depend on the finer details of the scheme and the attractiveness of competing investment options."The yield on US Treasury bonds is around 4.5%, while US corporate bonds can offer returns of 6% or more. Therefore, it is very important for banks to price FCNR(B) deposits competitively," Sabnavis said.
Gaura Sen Gupta, Chief Economist at IDFC First Bank, is more optimistic, estimating that FCNR(B) deposits alone could garner up to $40 billion. Madhavi Arora, Chief Economist at Emkay Global Financial Services, expects combined inflows of $30-40 billion through FCNR(B) deposits and external commercial borrowings (ECBs).
The RBI has simultaneously introduced a concessional forex swap facility until September 30, 2026, to encourage public sector undertakings to raise external commercial borrowings.
Canara Bank Managing Director and Chief Executive Officer Brajesh Kumar Singh said the higher returns could significantly boost inflows. "Our FCNR(B) portfolio is around Rs 9,600 crore. We expect a 10-20% increase in deposits, translating into additional inflows of Rs 1,000-2,000 crore," he said.
Singh added that Canara Bank could be among the major beneficiaries of the scheme because of its strong presence in southern states such as Kerala and Karnataka, which account for a large share of India's overseas workforce.
Bankers believe the RBI's move could prove particularly effective in attracting non-resident Indian (NRI) funds, as it enables banks to offer higher returns without increasing their funding costs.
Outstanding FCNR(B) deposits stood at around $34 billion at the end of March 2026. During FY26, banks witnessed a modest increase of about $950 million in FCNR(B) deposits, compared with inflows of nearly $7 billion in the previous year.
Market participants also drew parallels with a similar RBI initiative launched in 2013, which helped mobilise about $34 billion through FCNR(B) deposits and ECBs, providing crucial support to India's external sector during a period of currency volatility.
The key benefit of FCNR (B) accounts is that both the principal and interest can be repatriated overseas without any restrictions. The interest earned on FCNR deposits are tax-free in India.