No proposal to prematurely end FCNR (B) incentive scheme: RBI Governor
Mumbai, Aug 5
RBI Governor Sanjay Malhotra said on Wednesday there is no proposal to prematurely close the Foreign Currency Non-Resident, or FCNR, deposit incentive scheme.
The RBI Governor was responding to a question at a press conference here after the announcement of the monetary policy review earlier in the day.
The scheme has driven robust capital inflows into the country, enabled Indian banks to mobilise $36.7 billion through FCNR deposits (as of July 31, 2026) which has helped to steady the rupee compared to the US dollar, at a time when it had begun to slide amid rising oil prices in the global market.
Driven by these massive FCNR inflows, India's headline foreign exchange reserves are expected to cross the $700 billion milestone in the coming weeks.
The concessional zero-cost swap facility offered by the RBI remains fully operational and is scheduled to run through its original deadline of September 30, 2026.
"Even before these measures came in, we had a very strong and comfortable external position. This further fortifies our external position," the RBI Governor said.
Malhotra further stated that the RBI's policy has always been to allow markets to determine the rupee's price level within the band and that the central bank does not pursue a specific exchange-rate level.
"We only intervene in case there is an excessive volatility or there are speculative pressures that are getting built in," he explained.
The RBI will endeavour to ensure the rupee's trajectory remains orderly, without disruptive movements or the build-up of self-fulfilling expectations around the exchange rate, he further stated.
Major commercial banks like State Bank of India (SBI), and ICICI Bank have collectively captured over half of all inflows generated under the FCNR (B) special dollar-mobilisation drive.
The RBI temporarily eased interest rate curbs on non-resident deposits to enable banks to offer higher returns on fresh FCNR (B) and NRE deposits, with the aim of attracting more overseas funds to prop up the country's foreign exchange reserves and strengthen the rupee.
Under the relaxed rules that have been put in place till September 30, 2026, the RBI has withdrawn the interest rate ceiling on fresh Foreign Currency Non-Resident (Bank), or FCNR(B), deposits with maturities of more than three years and up to five years. It has also removed restrictions on interest rates offered on fresh Non-Resident External (NRE) deposits of three years and above.
The move gives banks more freedom to offer higher interest rates to non-resident Indians, in order to mobilise more foreign-currency and rupee deposits from overseas investors and savers.
Before the new rules were rolled out, banks were required to ensure that interest rates on NRE deposits did not exceed those offered on comparable domestic rupee term deposits. FCNR (B) deposits of three to five years were subject to an interest rate ceiling linked to the applicable overnight alternative reference rate or swap rate plus 350 basis points.
— IANS
Reader Comments
While I appreciate the RBI's efforts to stabilize the rupee, I wonder if this heavy reliance on FCNR deposits is just a short-term fix. These are typically short to medium-term funds, right? What happens when they mature? We need long-term FDI too. 🤔
Great to see NRIs stepping up and contributing to India's growth story. The relaxed interest rates are a good incentive for them to bring their money home. This will definitely give the rupee the cushion it needs! 🇮🇳
The Governor is saying they don't target a specific exchange rate level, but the market knows exactly what they're doing. The "band" approach is nice in theory, but in practice, it creates uncertainty for importers and exporters who need predictability for their business decisions.
God bless the RBI. They're managing the external sector very well. $36.7 billion is no small number. This will also help in controlling imported inflation since the rupee won't depreciate unnecessarily. Solid work by Governor Malhotra 🙌
I must say, these incentives are working brilliantly for Indian banks. SBI and ICICI capturing 50% of the inflows shows they have the best offers. However, I hope the smaller banks also benefit. We need balanced growth in the banking sector, yaar.
A