Amid sharp foreign investment outflows and prolonged weakness in the rupee, the Reserve Bank of India (RBI) has revived an old playbook: opening the taps on foreign currency deposits from non-resident Indians (NRIs).
In the past, such deposits, offered in select foreign currencies at interest rates well above standard benchmarks, have triggered sizable inflows into Indian banks. The central bank is now betting that a fresh wave of short-term foreign currency inflows will give it room to slow the rupee’s slide. But while the strategy is attractive for NRIs, it carries broader macroeconomic risks by adding to India’s external debt.
Dollar dependence
As of March, total NRI deposits in Indian banks stood at around $165 billion. Of this, foreign currency non-resident (B), or FCNR(B), deposits, accounted for $33 billion, or about 20%. The larger share sits in non-resident rupee accounts, which are denominated in rupees, and is what NRIs use to repatriate money to families in India. Over the past 15 years, the FCNR(B) share in total NRI deposits peaked at 41% in December 2013.
FCNR(B) accounts—currently in focus under recent policy tweaks—are offered by Indian banks in multiple foreign currencies and carry a minimum maturity of one year. Their interest rates are set at a significant premium over global benchmark rates. Recent regulatory changes have allowed banks greater flexibility to offer higher returns on these deposits, while also easing the currency risk borne by banks when deploying these funds for domestic lending.
2013 redux
The Indian economy has had a fraught relationship with NRI flows. Today, remittances from NRIs are a steady pillar of the external account. But that was not always the case.
In the run-up to the 1991 economic crisis, NRI deposits into Indian banks rose sharply. But as the crisis unfolded, they reversed and turned into ‘hot money’ flows out of India. NRIs, worried about the value and safety of their money, pulled it out of Indian banks.
Since then, however, NRI deposits have turned into an often-used tool to prop up the rupee and attract short-term inflows very quickly. The most prominent example came in 2013, when a surge in US Treasury yields put the rupee under severe pressure. The RBI used a similar playbook and made it cheaper for banks to offer such deposits. Within three months, NRI deposit inflows surged to $24.5 billion, helping offset negative equity flows at the time.
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Mirroring the broader pattern of NRI remittances to India, the bulk of FCNR(B) and NRI deposits, more generally, come from only a few countries. In fact, just two countries, the United Arab Emirates (UAE) and the US, accounted for two-thirds of FCNR(B) deposits as of December 2025.
Broadly, Gulf countries account for a larger number of NRIs but contribute a smaller share of remittances compared with the US and Europe, where higher-skilled, higher-income professionals dominate.
With the US and Iran reaching a peace deal, economies across the Gulf will likely focus on rebuilding destroyed infrastructure, leading to greater demand for foreign workers. Over time, this is likely to translate into higher remittances and NRI deposits from those regions.
Lucrative proposition
FCNR(B) deposits can prove lucrative for NRIs. The central bank has liberalized rules on the maximum interest rates that banks can offer on such deposits. It has also liberalized the cap on deposits up to three years to 2.5 percentage points above a widely used global benchmark rate. For US dollar deposits, that benchmark is the Secured Overnight Financing Rate (SOFR), which closely tracks the US federal funds rate at about 3.63%. Adding the maximum margin means that NRIs can now earn returns on an FCNR deposit of up to 6.13% on deposits up to three years.
In addition to this, the RBI has lifted the cap on interest rates on deposits for maturities greater than three years entirely. Reports indicate that banks are offering FCNR deposits in that maturity bucket of about 7% per annum, if not more. Those rates could rise further, with current indications that the US central bank could increase interest rates to tame inflation there.
Debt dangers
The accretion of FCNR(B) deposits leads to a rise in India’s external debt. To the extent that such debt is held by foreigners or overseas Indians and is denominated in foreign currency, it can pose a risk to the Indian economy.
During the 1991 Gulf War, panic withdrawals of foreign currency deposits by NRIs added fuel to the economic crisis that befell India later that year.
But the economy’s resilience has improved significantly since then.
In 1991, the ratio of India’s short-term debt (which matures in one year or less) to its foreign exchange reserves was an alarming 146%. This essentially meant that if all that debt were recalled at once, it would have bankrupted the Indian economy.
Since the 2000s, this ratio has moderated substantially, generally ranging between the late teens and mid-twenties. A notable exception came in 2013, when a sharp increase in FCNR(B) deposit mobilization pushed the ratio up from about 27% in 2012 to 33% in 2013. A similar uptick is likely again if current inflow trends persist.
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