RBI Lifts Rate Cap on NRI Foreign-Currency Deposits to Attract Inflows

The Reserve Bank of India has temporarily withdrawn the interest-rate ceiling on fresh Foreign Currency Non-Resident (Bank), or FCNR(B), deposits with tenors of three to five years, a relaxation effective from June 17 and running through September 30. Previously, the interest banks could offer on such deposits was capped, limiting their ability to compete for foreign-currency savings. With the cap lifted, banks can align rates with prevailing market conditions, making the deposits more attractive to non-resident Indians and encouraging inflows into the banking system. Deposits renewed on maturity for these tenors also benefit from the removal of the cap, giving banks greater operational flexibility. The move is expected to help lenders mobilise foreign-currency funding, improve liquidity management and support the rupee by drawing in overseas capital. FCNR(B) accounts allow non-resident Indians to hold deposits in foreign currencies, shielding them from exchange-rate fluctuations on the principal. The measure reflects the central bank's use of targeted, time-bound tools to manage external flows and funding conditions, and banks are likely to compete more actively for these deposits during the window before the relaxation expires.