NRIs in UAE: Deposit restrictions eased until September — how you can benefit

Dubai: India's latest move arrives at a crucial time for NRIs in the UAE. Indian expats are being offered some of the most attractive returns in years on foreign-currency deposits after the Reserve Bank of India (RBI) temporarily relaxed key rules governing NRI savings products.

The move has prompted banks across India to sharply raise rates on Foreign Currency Non-Resident (Bank), or FCNR(B), deposits, with some lenders now offering as much as 7.1 per cent on US dollar deposits.

The changes are part of a broader effort by Indian authorities to attract overseas funds, strengthen foreign exchange reserves and support the rupee amid elevated oil prices and global market volatility. The measures are particularly significant for Indians across the Gulf, who account for a large share of India's annual remittance inflows.

According to the RBI, the relaxation will remain in place until September 30, 2026, creating a limited window for non-resident Indians to access the enhanced rates.

What has RBI changed?

The central bank has withdrawn interest-rate ceilings on fresh FCNR(B) deposits with maturities of more than three years and up to five years. Restrictions on interest rates offered on fresh Non-Resident External (NRE) deposits with tenors of three years and above have also been removed.

Before the change, banks were required to keep NRE deposit rates within limits linked to comparable domestic fixed deposits, while FCNR(B) deposits were subject to regulatory caps linked to global benchmark rates.

FCNR(B) vs NRE deposits?

FCNR(B) and NRE accounts are two of the most popular banking options available to non-resident Indians. An FCNR(B) deposit allows NRIs to keep their savings in a foreign currency such as US dollars, pounds sterling or euros, meaning both the principal and interest are protected from fluctuations in the rupee.

An NRE deposit, by contrast, is maintained in Indian rupees and is typically used by NRIs to park overseas earnings in India. Both accounts allow funds and interest to be repatriated abroad, but FCNR(B) deposits are often preferred by investors seeking protection from currency movements, while NRE deposits may appeal to those who expect the rupee to strengthen over time or want to hold money in India's local currency.

India wants NRI dollars

The RBI said the objective of the latest move is to give banks greater flexibility to attract overseas deposits and boost foreign-currency inflows. The relaxation follows a series of measures announced by Indian policymakers in recent months to encourage overseas investment and improve foreign-currency liquidity.

The latest measures come as policymakers seek to strengthen the country's external position. According to Reuters, Indian banks could collectively mobilise between $35 billion and $40 billion through the latest FCNR(B) deposit programme, highlighting the scale of overseas savings that authorities are attempting to attract.

The initiative also follows pressure on the rupee from rising global oil prices and periods of foreign portfolio outflows. Since India imports the majority of its crude oil requirements, higher energy prices can increase demand for foreign currency and place pressure on the country's trade balance. For policymakers, attracting NRI deposits provides a relatively stable source of foreign-currency funding compared with short-term portfolio flows.

Why Indians in UAE benefit

For many Indians working in the UAE, FCNR(B) deposits offer a feature that domestic fixed deposits cannot: protection from rupee depreciation. The deposits are maintained in foreign currency, meaning both the principal and interest are repaid in the same currency in which the deposit was made.

For a UAE resident who earns in dirhams and converts savings into dollars, this removes the risk that future rupee weakness could erode investment returns. Interest earned on eligible FCNR(B) deposits is also exempt from income tax in India. That combination of higher returns, tax benefits and currency protection is one reason banks are seeing strong interest from overseas customers.

How much can NRIs earn?

The difference between FCNR(B) deposits and domestic fixed deposits has narrowed dramatically. Before RBI's intervention, FCNR(B) deposits typically offered between 3.35 per cent and 4 per cent. Banks are now offering between 6 per cent and 7.1 per cent for three-to-five-year deposits.

Among the lenders that have announced higher rates:

• State Bank of India has raised FCNR(B) rates to as much as 6 per cent.

• Canara Bank is offering up to 6.5 per cent.

• AU Small Finance Bank has announced rates as high as 7.1 per cent on select US dollar deposits.

These returns are now broadly comparable with many domestic fixed deposits in India, a situation that was uncommon before the RBI's intervention.

RBI is absorbing a key cost

A major reason banks can afford to offer higher returns is a special facility introduced by the RBI.

Under the arrangement, the central bank is effectively absorbing much of the foreign-exchange hedging cost associated with fresh FCNR(B) deposits mobilised during the special window.

According to MUFG analysts, this allows banks to pass a significant portion of the benefit directly to depositors without materially increasing their own funding costs.

Bankers have described the arrangement as beneficial for both lenders and depositors because it improves returns while helping banks attract stable foreign-currency funding.

Can old depositors switch?

This has emerged as one of the biggest questions among NRIs. The RBI's incentive applies only to fresh deposits and deposits reaching maturity. Existing deposits continue under their original terms.

As a result, some customers who opened FCNR(B) deposits shortly before the new rates were announced are finding themselves locked into substantially lower returns.

According to bankers cited in media reports, some depositors have requested permission to prematurely close deposits and reinvest at higher rates, while others have transferred funds to competing banks offering more attractive returns.

Current rules require FCNR(B) deposits to remain invested for at least one year. Deposits withdrawn before that period lose interest benefits. Withdrawals after one year generally attract a one-percentage-point reduction from the contracted rate.

Reforms go beyond FDs

The RBI's latest NRI-focused measures are not limited to bank deposits. India has also introduced sweeping changes aimed at making investing in Indian financial markets easier for overseas investors, including NRIs and Overseas Citizens of India (OCIs).

At the centre of the reforms is a simplified repatriable rupee account framework. Under the new system:

• Investments can be funded through inward remittances or eligible repatriable deposits.

• Transactions can be routed through a dedicated rupee account.

• Sale proceeds can be credited back into the same account.

• Funds can be repatriated overseas after applicable taxes are paid.

The changes are designed to simplify what many overseas Indians have long viewed as a cumbersome investment process.

Higher stock market limits

The reforms also expand opportunities for overseas investors seeking exposure to Indian equities. The RBI has increased the individual investment limit in listed Indian companies from 5 per cent to 10 per cent. The aggregate cap for overseas individual investors has been raised from 10 per cent to 24 per cent.

The higher thresholds allow investors to build larger positions without triggering additional regulatory requirements. If an investor's holding exceeds 10 per cent, the stake may be classified under India's foreign direct investment framework and become subject to separate rules and sector-specific limits.

What UAE NRIs watch next

For Indian professionals and business owners in the UAE, the RBI's measures create two distinct opportunities. The first is the chance to lock in some of the highest FCNR(B) rates available in years while avoiding rupee depreciation risk.

The second is easier access to Indian financial markets through simplified account structures and higher investment limits. The key date remains September 30.

That is when the RBI's temporary relaxation and associated incentives are scheduled to expire. Whether banks continue offering rates near current levels beyond that deadline will depend largely on how much fresh overseas money flows into India during the coming months.

For now, FCNR(B) deposits offer something rarely seen in recent years: dollar-denominated returns that are approaching those available on rupee fixed deposits, while preserving protection against currency fluctuations.