The Foreign Currency Non-Resident (Bank), or FCNR(B), is a deposit scheme that allows Non-Resident Indians (NRIs) and Persons of Indian Origin (PIOs) to hold term deposits in India in designated foreign currencies. It is a concept governed by the Reserve Bank of India (RBI) under the Foreign Exchange Management Act (FEMA). The scheme was introduced in 1993, replacing the older FCNR(A) scheme. The primary problem it solved was shifting the currency exchange risk from the RBI to the commercial banks, as the FCNR(A) scheme had created quasi-fiscal costs for the government.
The FCNR(B) account is maintained only as a fixed deposit, not a savings or current account, with a minimum tenure of one year and a maximum of five years. Deposits are accepted in freely convertible foreign currencies, such as the US Dollar (USD), Pound Sterling (GBP), Euro (EUR), Japanese Yen (JPY), Australian Dollar (AUD), and Canadian Dollar (CAD). A key mechanism is that the deposit remains denominated in the foreign currency, protecting the depositor from fluctuations in the Indian Rupee. Both the principal amount and the interest earned are fully repatriable, meaning they can be freely transferred abroad. Interest earned on these deposits is tax-free in India for the NRI.
The interest rate ceiling is linked to an international benchmark, which was historically the LIBOR/SWAP rate, but has recently transitioned to the Overnight Alternative Reference Rate (ARR). In a recent change, effective December 6, 2024, the RBI temporarily increased the interest rate ceiling to attract foreign capital inflows. For deposits of 1 year to less than 3 years, the ceiling was raised to ARR plus 400 basis points, and for 3 to 5 years, it was raised to ARR plus 500 basis points; this relaxation is available until March 31, 2025. The FCNR(B) scheme is closely connected to other NRI deposit accounts like the Non-Resident External (NRE) Account and the Non-Resident Ordinary (NRO) Account.