Reserve Bank of India Expected to Re-Introduce FCNR-B Deposit Route in Upcoming Policy Review to Counter Rupee Decline

Reserve Bank of India May Introduce Incentives for NRI Deposits to Combat Rupee Depreciation

The Reserve Bank of India (RBI) is considering introducing incentives for Non-resident Indian (NRI) deposits in its upcoming April monetary policy committee (MPC) review to mitigate the decline in the value of the Indian rupee. Experts believe that the RBI may bring back the foreign currency non-resident (FCNR (B)) deposit route to attract foreign deposits and stabilize the volatility in the Indian Rupee.

According to a recent report by Macquarie Capital, NRI deposits have faced a significant fall of nearly 26 percent in the April 2025-January 2026 period to $14.35 billion. The report notes that FCNR-B flows have dropped to $0.94 billion in the same period, as compared to $7.02 billion last year.

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The RBI's move is aimed at targeting the sharp decline in FCNR-B flows. The United Arab Emirates (UAE) alone accounts for more than 40 percent of FCNR (B) deposits at Indian banks, showing notable concentration in the Gulf region.

The rupee has faced a sharp depreciation from the start of the war in West Asia since late February, falling nearly 3 percent. FY26 was one of the worst fiscal years for the rupee in a decade, having depreciated nearly 10 percent, with much of the fall coming after the West Asia war broke out.

Even as the RBI introduced stringent measures last week to curtail excessive speculative trading in the offshore forwards markets, market participants still worry that it may not be enough to withstand the impact of the West Asia war. If the central bank decides in favour of these deposit instruments, FCNR (B) would be making a comeback after nearly 13 years.

In 2013, the RBI launched a special swap window to attract FCNR (B) deposits to stem excessive volatility in the rupee and prevent further fall in forex reserves. Banks were allowed to swap US dollars deposits with a maturity of three years or more, at a concessional rate of 3.5 percent, which was much cheaper than the market rate. This resulted in nearly $30 billion in inflows, which helped stabilize the currency.

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Market participants are expecting similar measures from the RBI to help keep the currency in a stable mode. "If rupee weakness continues unabated, we think that other policies tried in the past such as FCNR(B) subsidised swap windows to attract NRI deposits like what was done in 2013 are possible (and was done successfully then), although the cost now is much higher given where global/US interest rates are," said Michael Wan, Senior Economist at Japanese bank MUFG.

The RBI is expected to hold interest rates in the April 8 meeting, according to a Moneycontrol poll, while market participants will await the central bank's FY27 projections for growth and inflation. Liquidity management measures will also be on the radar for RBI, according to the poll.