Higher FCNR and NRE interest rates, along with relaxed investment rules, offer better returns ahead of the September deadline.
Dubai: India’s latest policy move comes at a crucial time for NRIs in the UAE, with Indian expatriates now being offered some of the most attractive returns in years on foreign-currency deposits after the Reserve Bank of India (RBI) temporarily eased key regulations governing NRI savings products.
The move has led banks across India to significantly increase interest rates on Foreign Currency Non-Resident (Bank), or FCNR(B), deposits, with some lenders now offering up to 7.1% on US dollar deposits.
The changes form part of a broader effort by Indian authorities to attract overseas capital, strengthen foreign exchange reserves, and support the rupee amid higher oil prices and global market volatility. The measures are especially relevant for Indian expatriates across the Gulf, who contribute a substantial portion of India’s annual remittance inflows.
According to the Reserve Bank of India (RBI), the relaxation will remain in effect until September 30, 2026, providing a limited window for non-resident Indians to benefit from higher interest rates.
What has the RBI changed?
The central bank has removed interest rate ceilings on fresh FCNR(B) deposits with maturities of more than three years and up to five years. It has also lifted restrictions on interest rates for fresh Non-Resident External (NRE) deposits with tenors of three years and above.
Before the change, banks were required to keep NRE deposit interest rates within limits linked to comparable domestic fixed deposits, while FCNR(B) deposits were subject to regulatory caps tied to global benchmark rates.
FCNR(B) vs NRE deposits
FCNR(B) and NRE accounts are among the most commonly used banking options for non-resident Indians. An FCNR(B) deposit allows NRIs to hold savings in foreign currencies such as US dollars, British pounds, or euros, meaning both principal and interest are insulated from fluctuations in the Indian rupee.
In contrast, an NRE account is maintained in Indian rupees and is typically used to deposit overseas earnings in India. Both account types allow full repatriation of funds and interest abroad. However, FCNR(B) deposits are generally preferred by those seeking protection from currency volatility, while NRE deposits may appeal to investors who anticipate rupee appreciation or prefer holding funds in Indian currency.
India seeks to attract NRI dollars
The RBI said the aim of the latest move is to give banks greater flexibility to attract overseas deposits and increase foreign-currency inflows. The relaxation follows a series of recent policy steps by Indian authorities to encourage overseas investment and strengthen foreign exchange liquidity.
The measures come as policymakers work to reinforce India’s external financial position. According to Reuters, Indian banks could collectively raise between $35 billion and $40 billion through the updated FCNR(B) deposit programme, highlighting the scale of overseas savings being targeted.
The initiative also comes amid pressure on the rupee due to rising global oil prices and intermittent foreign portfolio outflows. As India imports most of its crude oil, higher energy costs increase demand for foreign currency and can widen the trade deficit. In this context, NRI deposits offer a more stable source of foreign-currency funding compared with volatile short-term capital flows.
Why Indians in the UAE benefit
For many Indians working in the UAE, FCNR(B) deposits provide a key advantage over domestic fixed deposits: protection against rupee depreciation. Since these deposits are held in foreign currency, both principal and interest are repaid in the same currency in which the deposit was originally made.
For UAE residents earning in dirhams and converting savings into US dollars, FCNR(B) deposits help eliminate the risk that future rupee depreciation could reduce investment returns. In addition, interest earned on eligible FCNR(B) deposits is exempt from income tax in India.
This combination of attractive returns, tax advantages, and currency protection is driving strong interest from overseas customers, with banks reporting increased demand from the Indian diaspora.
How much can NRIs earn?
The gap between FCNR(B) deposits and domestic fixed deposits has narrowed significantly. Prior to the RBI’s recent intervention, FCNR(B) deposits typically offered interest rates in the range of 3.35% to 4%. However, banks are now offering between 6% and 7.1% for three-to-five-year deposits.
Several lenders have already announced higher revised rates following the regulatory relaxation, reflecting increased competition to attract NRI funds.
Higher FCNR(B) returns for NRIs
State Bank of India has increased its FCNR(B) rates to as much as 6%, while Canara Bank is offering up to 6.5%. AU Small Finance Bank has announced rates as high as 7.1% on select US dollar deposits.
These returns are now broadly comparable with many domestic fixed deposit rates in India—something that was rarely seen before the RBI’s intervention.
RBI absorbing key cost
A major factor enabling banks to offer higher returns is a special facility introduced by the Reserve Bank of India (RBI). Under this arrangement, the central bank absorbs a significant portion of the foreign exchange hedging costs linked to fresh FCNR(B) deposits mobilised during the special window.
According to MUFG analysts, this mechanism allows banks to pass on much of the benefit directly to depositors without substantially increasing their own funding costs.
Bankers have described the arrangement as mutually beneficial for both lenders and depositors, as it enhances returns for customers while enabling banks to attract more stable foreign-currency funding.
Can old depositors switch?
This has become one of the key questions among NRIs. The RBI’s incentive applies only to fresh FCNR(B) deposits and those reaching maturity. Existing deposits will continue under their original terms and conditions.
As a result, some customers who opened FCNR(B) deposits shortly before the revised rates were introduced remain locked into significantly lower returns.
According to bankers cited in media reports, some depositors have requested early closure of FCNR(B) deposits to reinvest at higher interest rates, while others have shifted funds to competing banks offering better returns.
Current regulations require FCNR(B) deposits to remain locked in for at least one year. Premature withdrawals before this period result in loss of interest benefits, while withdrawals after one year typically incur a one-percentage-point reduction from the contracted rate.
Reforms go beyond fixed deposits
The RBI’s latest NRI-focused measures extend beyond bank deposits. India has also introduced broader reforms aimed at making it easier for overseas investors, including NRIs and Overseas Citizens of India (OCIs), to invest in Indian financial markets.
At the centre of these changes is a simplified repatriable rupee account framework. Under the new system:
Investments can now be funded through inward remittances or eligible repatriable deposits. Transactions can be carried out via a dedicated rupee account, with sale proceeds credited back into the same account. Funds can also be repatriated overseas after applicable taxes are paid.
These changes aim to simplify what many overseas Indians have traditionally considered a complex investment process.
Higher stock market limits
The reforms also widen access for overseas investors seeking exposure to Indian equities. The RBI has raised the individual investment limit in listed Indian companies from 5% to 10%, while increasing the aggregate cap for overseas individual investors from 10% to 24%.
These higher thresholds enable investors to take larger positions without immediately triggering additional regulatory requirements. However, if holdings exceed 10%, the investment may fall under India’s foreign direct investment framework and become subject to separate rules and sector-specific limits.
What UAE NRIs should watch next
For Indian professionals and business owners in the UAE, the RBI’s measures create two key opportunities. The first is the ability to lock in some of the highest FCNR(B) deposit rates seen in years, while maintaining protection against rupee depreciation.
The second is improved access to Indian financial markets through simplified account structures and higher investment limits, making cross-border investing more straightforward.
A key date to watch is September 30, when the RBI’s temporary relaxation and associated incentives are scheduled to end. Future interest rate levels beyond this period will likely depend on how much fresh overseas capital flows into India in the coming months.
For now, FCNR(B) deposits are offering a rare combination: dollar-denominated returns approaching those of rupee fixed deposits, while still preserving currency stability benefits.
