RBI lifts rate caps on select NRI deposits till Sept 30 to attract foreign capital, support rupee

The Reserve Bank of India (RBI) on Wednesday temporarily removed interest rate ceilings on select foreign currency and non-resident deposits, giving banks greater flexibility to offer attractive returns to overseas Indians and mobilise fresh foreign capital.

The move, effective immediately and valid until September 30, 2026, comes as the central bank seeks to encourage inflows amid pressure on the rupee and heightened volatility in global financial markets.

Banks get flexibility to attract NRI deposits

In a notification, the RBI said the interest rate ceiling on fresh Foreign Currency Non-Resident (Bank), or FCNR(B), deposits with maturities of three years and above up to five years has been withdrawn temporarily.

The relaxation also applies to FCNR(B) deposits that are renewed upon maturity during the specified period.

FCNR(B) accounts allow Non-Resident Indians (NRIs) to maintain term deposits in designated foreign currencies, shielding depositors from exchange rate risks while enabling banks to access foreign currency resources.

The central bank also eased restrictions on Non-Resident External (NRE) deposits of three years and above, including renewed deposits, allowing banks greater freedom in pricing these instruments to attract overseas savings.

Part of broader foreign inflow measures

While granting flexibility on NRI deposits, the RBI reiterated that interest rates offered on NRE and Non-Resident Ordinary (NRO) deposits should not exceed the rates offered by a bank on comparable domestic rupee term deposits.

The latest relaxation forms part of a wider set of measures announced by the RBI earlier this month to strengthen foreign exchange inflows and improve liquidity in the external sector.

Among those measures was a concessional foreign exchange swap facility for authorised dealer (AD) banks raising fresh FCNR(B) deposits with maturities between three and five years. The facility allows banks to hedge currency risks at a lower cost, making such deposits more attractive for both lenders and depositors.

Focus on external stability

The RBI's decision comes at a time when policymakers are closely monitoring global financial conditions, capital flows and currency movements. Enhanced mobilisation of NRI deposits has historically served as an important source of foreign currency funding during periods of external-sector stress.

The latest relaxation follows measures announced by RBI Governor Sanjay Malhotra during the June monetary policy review, where the central bank unveiled steps to attract durable foreign currency inflows. The move comes against the backdrop of the rupee facing depreciation pressures due to global geopolitical uncertainties, elevated crude oil prices and shifting capital flows.