Foreign Currency Non-Resident Bank Accounts Explained

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The Reserve Bank of India (RBI) recently introduced a special facility to help commercial banks collect fresh three- to five-year Foreign Currency Non-Resident (Bank) deposits.

These deposits are special fixed-term foreign currency bank accounts in India for Non-Resident Indians (NRIs), Overseas Citizens of India (OCIs), and Persons of Indian Origin (PIOs).
Normal NRI accounts convert foreign money into Indian Rupees automatically, but FCNR(B) deposits let overseas Indians keep their savings in global currencies.

The main goal is to give Indian banks a steady and large supply of low-cost overseas money to strengthen the country's capital account.
For account holders, it offers a safe way to earn tax-free profits in India without worrying about the local currency losing value.

An NRI deposits money into an Indian bank in accepted foreign currencies like the US Dollar ($), Pound Sterling (£), Euro (€), Japanese Yen (¥), Australian Dollar (A), or Canadian Dollar (C).
In the first step, the commercial bank sells these foreign funds to the RBI once a week in blocks of $1 million.
This trade happens at the official daily FBIL Reference Rate issued by Financial Benchmarks India Private Limited.
In the second step, the bank agrees to buy back the exact same foreign money from the RBI when the three- to five-year term ends.
Because the buyback uses the exact same exchange rate, the RBI covers all future hedging costs and removes extra expenses for the bank.

All interest earned on these deposits is completely free from income tax in India as long as the person stays a non-resident under tax rules.
To help banks make more profit, these new deposits do not have to maintain the Cash Reserve Ratio or the Statutory Liquidity Ratio.
Interest rates follow global market standards, and they are usually 250 to 300 basis points lower than normal domestic Rupee fixed deposits.
For example, three-year FCNR(B) rates stay near 3% to 3.65%, while regular Indian fixed deposits pay more than 6%.
Because US banks offer higher yields above 4%, Indian banks may need to raise their FCNR(B) rates by at least 100 basis points to draw global funds.
These accounts form a key part of the total $165.65 billion NRI deposit pool, along with NRE and NRO accounts used for local Indian earnings.