RBI's FCNR-B deposit revival may channel long-term forex inflows
Synopsis
The RBI's revived FCNR-B deposit scheme could replicate the landmark 2013 drive that pulled in $34 billion — but with a more liberal design this time, including full hedging cost absorption and possible SLR/CRR exemptions. With forex reserves already at $682 billion, the real question is whether NRI appetite and yield differentials are wide enough to make the numbers count.
Key Takeaways
The RBI is pushing to reinvigorate FCNR-B deposits targeting NRI funds for tenures of 3–5 years .
The move draws parallels with the 2013 drive that mobilised around $34 billion — roughly 12% of India's forex reserves at the time.
The RBI may absorb the full cost of hedging and could exempt deposits from SLR and CRR requirements — a more liberal stance than 2013.
PSUs have been permitted to raise ECB funds under the scheme; the hedging window is open until 30 September 2026 .
India's forex reserves stand at approximately $682 billion , significantly higher than in 2013, potentially shaping the scale of the current effort.
A narrower India-US yield differential compared to 2013 remains a key variable that could limit inflow volumes, according to Jefferies .
The Reserve Bank of India (RBI)'s renewed push to reinvigorate Foreign Currency Non-Resident (Bank) — or FCNR-B — deposits could open a stable, long-term foreign exchange inflow channel into India's banking system, according to a report by global brokerage Jefferies released on 8 June 2025. The move targets non-resident Indians (NRIs) and aims to mobilise funds across tenures of 3–5 years.
The 2013 Parallel and What It Achieved
Jefferies drew a direct comparison with the RBI's 2013 mobilisation drive, when a combination of FCNR-B deposits and external commercial borrowing (ECB) schemes collectively attracted around $34 billion — equivalent to roughly 12 per cent of India's foreign exchange reserves at the time and nearly 3 per cent of total bank deposits. That effort was widely regarded as a success, aided in large part by leverage structures that allowed investors to amplify exposure through bank-issued standby letters of credit (SBLCs), generating substantially larger inflows.
However, the brokerage noted that subsequent regulatory changes led the RBI to discourage leverage through such instruments, narrowing the toolkit available in the current cycle.
How the Current Approach Differs
The 2025 iteration is reportedly more liberal in design. According to the Jefferies report, the central bank may absorb the full cost of hedging this time — a notable departure from 2013, when the RBI capped hedging costs for banks at 3.5 per cent. Additionally, such deposits may be exempted from statutory liquidity ratio (SLR) and cash reserve ratio (CRR) requirements, making them more attractive for participating banks.
The RBI has also permitted public sector undertakings (PSUs) to raise ECB funds under the scheme, with hedging costs potentially borne by the central bank. The hedging window is open until 30 September 2026.
Key Variables to Watch
One critical factor the report flagged is the yield differential between Indian and US assets, which is currently narrower than it was in 2013. This compressed spread may temper the scale of inflows compared to the earlier episode, unless clarity on leverage available to depositors improves significantly.
Notably, India's foreign exchange reserves currently stand at approximately $682 billion — substantially higher than in 2013 — which could influence both the design and the urgency of the current mobilisation effort, according to Jefferies.
Role of Large Banks and Credit Implications
The brokerage highlighted that participation from large banks was a decisive factor in 2013, widening the funding pool and supporting both credit growth and net interest margins during that period. A similar dynamic could play out if major public and private sector lenders engage at scale with the current FCNR-B push.
Whether the current drive replicates the scale of 2013 will depend on the interplay between regulatory incentives, the global interest rate environment, and NRI appetite for rupee-linked exposure — factors that markets and policymakers will be watching closely in the months ahead.
Point of View
A tool the RBI subsequently curtailed; without a comparable amplifier, the headline mobilisation number is unlikely to match. More importantly, with reserves already at $682 billion, the urgency is different — this looks less like a crisis response and more like a proactive buffer-building exercise. The real test is whether NRI investors find the compressed yield differential compelling enough to lock in for three to five years.
NationPress
1 Aug 2026
Frequently Asked Questions
What is the RBI's FCNR-B deposit scheme?
FCNR-B, or Foreign Currency Non-Resident (Bank) deposits, are fixed-term deposits held in foreign currency by non-resident Indians in Indian banks. The RBI is currently pushing to revive this instrument to attract stable, long-term foreign exchange inflows for tenures of 3–5 years.
How does the 2025 FCNR-B push compare to the 2013 drive?
The 2013 drive mobilised around $34 billion through FCNR-B and ECB schemes combined, aided by leverage structures via standby letters of credit. The 2025 approach is reportedly more liberal — the RBI may absorb full hedging costs and could exempt deposits from SLR and CRR requirements, compared to a 3.5% hedging cost cap in 2013.
Why does the yield differential matter for FCNR-B inflows?
A wider yield gap between Indian and US assets makes FCNR-B deposits more attractive to NRI investors. The current India-US yield differential is narrower than in 2013, which could limit the scale of inflows unless leverage clarity or other incentives compensate, according to the Jefferies report.
What is the deadline for the RBI's hedging window under the current scheme?
The hedging window for the current FCNR-B and ECB mobilisation effort remains open until 30 September 2026, according to the Jefferies report.
How large are India's current forex reserves compared to 2013?
India's foreign exchange reserves currently stand at approximately $682 billion, significantly higher than in 2013 when the earlier mobilisation drive represented about 12% of total reserves. This higher base could influence the design and scale of the current effort.
