RBI temporarily relaxes interest rate caps on certain NRI deposits until Sep 30, 2026

The Reserve Bank of India has temporarily removed interest rate ceilings on non-resident deposits, allowing banks to freely mobilize overseas funds until September 30, 2026. This move aims to help banks build long-term liabilities and strengthen their asset-liability management. Banks may now offer higher rates, potentially exceeding 8%, to attract sustainable deposits.

The Reserve Bank of India (RBI) on Wednesday temporarily relaxed interest rate restrictions on certain non-resident deposits, giving banks greater flexibility to offer higher returns on fresh FCNR(B) and NRE deposits in a move that could help attract overseas funds and strengthen foreign exchange inflows.Under the amended directions, the RBI has withdrawn the interest rate ceiling on fresh Foreign Currency Non-Resident (Bank), or FCNR(B), deposits with maturities of more than three years and up to five years.Also Read: RBI opens listed Indian equities for foreign investorsIt has also removed restrictions on interest rates offered on fresh Non-Resident External (NRE) deposits of three years and above. The relaxation, which also applies to eligible deposits renewed upon maturity, will remain in force until September 30, 2026.The central bank said transfers from Non-Resident Ordinary (NRO) accounts to NRE accounts would not qualify for the exemption.Prior to the amendment, banks were required to ensure that interest rates on NRE deposits did not exceed those offered on comparable domestic rupee term deposits. FCNR(B) deposits of three to five years were subject to an interest rate ceiling linked to the applicable overnight alternative reference rate or swap rate plus 350 basis points.The move gives banks greater freedom to offer more attractive rates to non-resident Indians, potentially helping mobilise additional foreign-currency and rupee deposits from overseas investors and savers.The latest relaxation adds to a series of recent measures aimed at attracting overseas capital and supporting India's external finances. Earlier this month, the RBI allowed all foreign individual investors to directly purchase shares in listed Indian companies, expanding access beyond non-resident Indians and overseas citizens of India. The move followed changes to foreign exchange rules that widened investment avenues for persons resident outside India.The central bank has also opened a special window for banks to mobilise FCNR deposits and offered a concessional swap facility for external commercial borrowings by public sector entities. Economists have estimated that the combined measures could generate tens of billions of dollars in additional inflows.Also Read: RBI's measures may attract USD 60-70 billion foreign capital, support rupee: India RatingsThe steps come at a time when foreign portfolio investors have been pulling money out of Indian equities and global uncertainties have increased pressure on emerging-market currencies. Higher overseas inflows could help support the rupee, bolster foreign exchange reserves and ease external financing pressures.The amended directions came into effect immediately.