Some Indian banks are currently offering returns of more than 7 per cent to non-resident Indians on US dollar fixed deposits after the Reserve Bank of India launched an initiative that will run until September 30.
Under the scheme announced on June 8, India’s central bank has offered the full cost of hedging for lenders raising three to five-year foreign currency deposits and permitted borrowing against such funds. That is a concerted effort to attract capital from the country’s 35 million-strong diaspora.
What is an FCNR (B) account?
Indian citizens can open what is known as the Foreign Currency Non-Resident Bank account, in addition to the usual Non-Resident External (NRE) accounts. Account holders can hold money in FCNR (B) accounts in foreign currencies while NRE accounts can only hold savings or deposits in Indian rupees. Both account types are exempt from taxes in India, but any income could come under the purview of tax laws in the country of residence.
Both accounts allow free repatriation of savings, deposits and profits earned, with the FCNR accounts allowing transfers in foreign currencies, unlike the NRE accounts.
What are the benefits of an FCNR account?
When you open an FCNR deposit in US dollars, or another available currency, the bank records the deposit in that currency holding the principal and interest in US dollars. The accounts help protect savings against rupee fluctuations over time.
That is especially useful for Indian residents in the UAE because the dirham is pegged to the dollar.
You can also hold money in British pounds, euros, Japanese yen, Australian dollars and Canadian dollars. The scheme offering higher returns, however, is only applicable to US dollar deposits.
What has changed?
With the RBI’s special scheme, it costs banks less to hold those deposits so they can share cost savings with customers. RBI Governor Sanjay Malhotra said this week that the measures have drawn about $40 billion between June 8 and July 26 – $32 billion of which was directly from the FCNR deposit scheme.
Will I get 7% returns on my FCNR deposit?
No, the rates advertised range from 5 per cent to more than 7 per cent, but it depends on factors including the deposit amount, bank and tenure. The rates are subject to change at any time. Once booked, the rate will remain fixed for the agreed-on term.
Are premature withdrawals allowed for FCNR deposits?
The current swap facility announced by the RBI includes a condition that the deposits cannot be withdrawn in the first year. Additionally, banks may impose further conditions or penalties for premature withdrawals, depending on a deposit's tenure.
For existing deposits, it may not be possible to close them early to take advantage of the new rates because specific conditions may prevent early withdrawal.
Can I send money from the UAE in US dollars?
Yes, but it could incur additional costs depending on how you choose to send or transfer the amount for the deposit. UAE banks allow transfers in US dollars, for which there may be additional charges, including transfer fees and intermediary or correspondent bank fees. You can also open a new deposit using funds in an existing an FCNR account.
You can convert money held in your NRE account to open a new deposit, but currency exchange charges will apply.
Is there a minimum amount for FCNR deposits?
Yes, there is a minimum required deposit, but this can vary depending on the bank. Usually, the lowest amount required is $1,000, or a similar value in another currency.
