RBI Wants More Dollars; Here's Why It Has Relaxed NRI Deposit Rules

The Reserve Bank of India on Wednesday notified that it will withdraw the restriction on interest rates for non-resident external (NRE) deposits with tenors of three years and above until September 30. The amendments will come into effect immediately, the central bank said.

Interest rates on NRE or non-resident ordinary (NRO) deposits shall not be higher than those offered by banks on comparable domestic rupee term deposits.

For deposits with maturities of one year and less than three years, the ceiling rate will be 250 basis points above the overnight alternative reference rate (ARR).

For tenors of three years to five years, the ceiling will be 350 basis points above the ARR. An ARR is a benchmark interest rate used to price floating-rate loans, derivatives and bonds.

What Are FCNR-B Accounts?

Foreign Currency Non-Resident Bank (FCNR-B) accounts are used by non-resident Indians (NRIs), Persons of Indian Origin (PIOs) and Overseas Citizens of India (OCIs) to park their money in foreign currencies with Indian banks and earn interest on them.

FCNR-B accounts are attractive because they eliminate the need for currency conversion, protect depositors from exchange rate fluctuations and offer tax-free interest income.

Why Did the RBI Introduce the Framework Now?

This is not the first time the central bank has introduced the framework. The scheme was launched in 1993 but rose to prominence in 2013 during the Taper Tantrum, when the rupee was in free fall and the Indian economy was grappling with a large current account deficit and elevated inflation.

Against this macroeconomic backdrop, the RBI, under then-Governor Raghuram Rajan, introduced the FCNR-B framework to support the weakening rupee. The result was that India attracted nearly $25 billion through the scheme, helping boost foreign exchange reserves and stabilise the currency.

While India now has a stronger and more resilient economy, lower inflation, a lower repo rate, a reduced current account deficit and comfortable forex reserves, pressure on the rupee remains a concern.

Following the Iran-US war, crude oil prices surged to multi-year highs, while investors pulled money out of emerging markets and moved towards safe-haven assets such as gold and the US dollar. India imports nearly 90% of its energy requirements. Elevated crude prices placed significant pressure on both the country's import bill and the rupee.

The rupee emerged as one of the worst-performing Asian currencies in 2025, having fallen around 10% against the US dollar. The domestic currency has declined nearly 6% so far this year.

To limit the pace of the rupee's depreciation and attract foreign capital into Indian financial markets and bank deposits, the RBI has reintroduced the FCNR-B framework.

How Does This Help the Rupee?

Under the swap window, banks may sell US dollars to the RBI in multiples of $1 million and reverse the transaction at the end of the agreed period. The inflow of dollars boosts the RBI's foreign exchange reserves, providing an additional buffer against volatility and intervention-related pressures in the currency market.

Slew of Measures to Attract Capital

The amendment relating to NRE and NRO deposits comes just weeks after the RBI announced a series of measures aimed at attracting foreign currency inflows.

At the June Monetary Policy Committee meeting, the central bank announced the introduction of the FCNR-B framework for fresh deposits mobilised by banks until September. The RBI will bear the entire cost of hedging currency fluctuations, making it easier for banks to attract deposits while shielding them from exchange rate risks and market volatility.

In addition, the central bank announced a concessional swap window for external commercial borrowings (ECBs) raised by public sector undertakings (PSUs), encouraging state-owned firms to borrow overseas.

The Centre also removed capital gains tax on government bonds, making investments in the government securities market more attractive to foreign investors.

Together, these measures are expected to bring nearly $50 billion into India's capital account at a time when domestic financial markets are witnessing a significant outflow of foreign portfolio investment.