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RBI temporarily withdraws rate caps on FCNR(B) and NRE deposits till September 30, 2026

Wednesday, 17 June 2026· 5 min read·Source: The Indian Express

The Reserve Bank of India (RBI) on June 17, 2026 temporarily withdrew the interest-rate ceilings on fresh Foreign Currency Non-Resident (Bank) — FCNR(B) deposits with maturities of more than three years and up to five years, and on fresh Non-Resident External (NRE) deposits of three years and above. The relaxation, which also covers eligible deposits renewed upon maturity, will remain in force until September 30, 2026. Under the existing framework, banks could not offer interest on NRE deposits higher than rates on comparable domestic rupee term deposits, and the FCNR(B) ceiling was linked to the Alternative Reference Rate (ARR) plus a spread. The move gives banks freedom to offer higher rates on NRI deposits, attract foreign-exchange inflows and strengthen liability management amid a weakening rupee and global-market volatility.

Key Facts & Details

9 points

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The RBI has temporarily withdrawn the interest-rate ceiling on fresh FCNR(B) deposits with 3-to-5-year maturities and on fresh NRE deposits of 3 years and above, effective June 17, 2026.
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The relaxation is in force until September 30, 2026, and applies both to fresh deposits and to eligible deposits renewed upon maturity.
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The standing rule capped NRE deposit rates at the level of comparable domestic rupee term deposits; the FCNR(B) ceiling was tied to the Alternative Reference Rate (ARR) plus a spread.
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The aim is to give banks more flexibility to attract foreign-currency inflows from non-resident Indians (NRIs) and strengthen asset-liability management at a time of rupee weakness and global-market volatility.
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Several banks including Bank of Baroda, Canara Bank, Federal Bank and Indian Overseas Bank have already announced special FCNR(B) schemes offering up to 6.5% for NRIs, leveraging the new flexibility.
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The decision came after smaller banks asked the RBI for room to compete more aggressively for non-resident deposits.

Deep Dive

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FCNR(B) deposits are foreign-currency term deposits (USD, GBP, EUR, JPY, etc.) held with Indian banks; principal and interest are repatriable and there is no exchange-rate risk to the depositor.
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NRE deposits are rupee-denominated accounts of NRIs/PIOs in which earnings repatriated from abroad are converted to rupees; both principal and interest are fully repatriable and the interest is tax-free in India.
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Goldman Sachs and other analysts said the package, alongside other RBI reforms, could attract $40-75 billion of additional NRI inflows in the coming months and ease pressure on the rupee.

Exam Focus

Examiners will test the full forms (FCNR(B), NRE), the maturity buckets (FCNR(B) 3-5 yr, NRE 3 yr+), the cut-off date (September 30, 2026), and the standing benchmark for NRE rates (comparable domestic rupee term deposits).

Exam Relevance & Angle

This is a textbook monetary-policy / forex-management action that banking and UPSC examiners ask repeatedly. It directly addresses rupee depreciation by widening the NRI-deposit channel for forex inflows — a tool the RBI has used in past stress episodes — and combines high-frequency banking terminology (FCNR(B), NRE, ARR) with a clear policy-rationale angle.

Target Exams

SBI POSBI ClerkIBPS POIBPS ClerkIBPS RRB OfficerIBPS RRB AssistantRBI Grade BRBI AssistantNABARD Grade ASSC CGLRRB NTPCLIC AAONIACL AOUPSC CSEState PCS

Background & Context

FCNR(B) stands for Foreign Currency Non-Resident (Bank) — a term-deposit scheme introduced in 1993 that allows NRIs to keep their savings in major foreign currencies with an Indian bank, with the bank bearing the exchange-rate risk; tenors range from 1 to 5 years. NRE stands for Non-Resident External Account, also rupee-denominated, in which foreign earnings of NRIs are credited after conversion. The interest on both schemes is exempt from income-tax in India and the principal and interest are fully repatriable. The Reserve Bank of India, established in 1935 and the country's central bank under the RBI Act, 1934, regulates these deposits because they are a key tool of forex management — when the rupee comes under pressure, the RBI has historically eased restrictions on FCNR(B)/NRE deposits to pull in foreign currency, as it did during the 2013 'taper tantrum'.

Related GK Concepts

Must Know

Foreign Currency Non-Resident (Bank) — FCNR(B) depositNon-Resident External (NRE) accountAlternative Reference Rate (ARR)Asset-liability management of banksRupee depreciation and forex inflowsReserve Bank of India (RBI Act, 1934)