RBI Eases Interest Rate Restrictions for NRE and FCNR Deposits

RBI's New Directive on NRE and FCNR Deposits

The Reserve Bank of India (RBI) has announced a temporary relaxation of interest rate limits on certain Non-Resident External (NRE) and Foreign Currency Non-Resident (FCNR[B]) deposits. This move allows banks to offer more competitive interest rates on deposits held by Non-Resident Indians (NRIs). As per the new guidelines issued on Wednesday, the RBI has lifted interest rate restrictions on new NRE deposits with maturities of three years or more, as well as on FCNR(B) deposits with terms ranging from three to five years. This relaxation will be effective until September 30, 2026.

Details of the New Regulations

Previously, banks were limited in the interest rates they could offer on NRE deposits, which could not exceed those available on similar domestic rupee fixed deposits. With the new regulations, banks can now provide higher rates for fresh NRE deposits of three years or longer, as well as for NRE deposits that are renewed upon maturity. However, transfers from Non-Resident Ordinary (NRO) accounts to NRE accounts will not be eligible for this exemption.

Additionally, the RBI has lifted the interest rate cap on new FCNR(B) deposits with maturities of three to five years. This change allows banks to offer rates that exceed previous ceilings, aiming to attract more foreign currency deposits until the end of September 2026.

Major Indian banks are responding by increasing interest rates on FCNR(B) deposits to draw in NRIs and mitigate the impact of a weakening Rupee. Previously, banks had to adhere to RBI-set limits based on overnight benchmark rates and swap rates. The recent adjustments by the RBI are expected to benefit NRIs by providing them with better returns, as banks can now compete more vigorously for overseas deposits and may introduce special deposit schemes with attractive rates.