NRIs eye dollar deposits as India’s FCNR scheme revives 2013 playbook

Dubai: Every investment opportunity comes with a trade-off.

At one end of the spectrum sit traditional bank deposits, valued for safety, liquidity and capital preservation. At the other end sit equities, private markets and alternative investments, where higher returns often come with higher volatility.

For years, investors have accepted that if they wanted meaningful returns, they would likely need to move beyond deposits. With deposit rates typically hovering around 3 to 4%, many investors gradually shifted toward equities, exchange-traded funds and other growth-oriented investments in search of better performance.

Yet 2026 has reminded investors why diversification remains important.

Global markets continue to navigate geopolitical tensions, elevated interest rates, inflation concerns and renewed uncertainty surrounding energy markets. Equity markets have remained resilient, but volatility has returned as investors assess the impact of ongoing conflicts and rising oil prices on global growth.

Against this backdrop, one of the most interesting opportunities this year has emerged not from the stock market, but from the Indian banking system.

The Reserve Bank of India recently announced a special Foreign Currency Non-Resident (Bank), or FCNR(B), deposit mobilisation programme, the first initiative of its kind since 2013. At first glance, it appears to be a banking measure. In reality, it is a currency strategy.

To understand why, investors must first understand India's relationship with the US dollar.

India imports approximately 85% of its crude oil requirements. Every barrel of imported oil is paid for in dollars. As oil prices rise, so does India's demand for dollars. With Brent crude trading above $95 per barrel at various points this year, the country's energy bill has increased materially.

The same principle applies to gold. India remains one of the world's largest consumers of physical gold, which helps explain why Prime Minister Narendra Modi has repeatedly encouraged households to reduce discretionary gold purchases and channel savings toward financial assets.

Managing those outflows is a critical part of managing the country's economic stability.

Three numbers help explain why the RBI has acted.

The Indian rupee has weakened from approximately ₹84-85 per US dollar a year ago to around ₹95 today.

India's foreign exchange reserves have declined from approximately $728 billion in February 2026 to around $681 billion by early June.

Meanwhile, US dollar deposits and Treasury instruments continue to offer yields around 4 to 4.5%, making it increasingly competitive for emerging markets to attract foreign currency capital.

Viewed together, the message is straightforward.

India wants more dollars & The FCNR(B) programme is designed to attract them.

FCNR(B), which stands for Foreign Currency Non-Resident (Bank) Deposit, allows eligible NRIs to place deposits with Indian banks while keeping both principal and interest denominated in foreign currency. Unlike traditional rupee deposits, investors are not exposed to rupee depreciation risk because their money remains in dollars, pounds sterling or other approved foreign currencies throughout the tenure of the deposit. Unlike traditional rupee deposits, investors are not exposed to rupee depreciation risk because their funds remain denominated in dollars, pounds sterling or other approved foreign currencies throughout the tenure of the deposit

For many overseas Indians, particularly those living in the UAE and wider GCC region, this creates a compelling proposition.

As someone who has spent more than two decades advising investors across the Gulf, including a significant Non-Resident Indian client base, I have seen this story before.

I still remember the conversations taking place during the 2013 Taper Tantrum. At the time, concerns surrounding the rupee dominated discussions across private banking offices, treasury departments and family offices throughout the region. Clients were worried about currency depreciation, capital outflows and whether India could continue attracting foreign capital in an environment of rising US interest rates.

The RBI responded with a special FCNR(B) mobilisation programme that ultimately attracted more than $30 billion in inflows and became one of the most successful liquidity measures of that period.

More than a decade later, policymakers have returned to a remarkably similar playbook.

The difference is that today's initiative appears more proactive than reactive.

Rather than waiting for pressure to intensify, the RBI is attempting to strengthen reserves, attract foreign currency and support confidence in the rupee before external vulnerabilities become more pronounced.

This time, however, investors are paying attention for another reason: the return.

Several Indian banks have increased FCNR(B) deposit rates, with some institutions offering yields approaching 6 to 7.1% on US dollar deposits.

Naturally, investors want to know how such rates are possible.

The answer lies in a special support mechanism introduced by the RBI. On June 5, the central bank launched a fixed-rate swap facility at just 1.5% for eligible FCNR(B) deposits. Industry estimates suggest that this provides banks with a benefit of approximately 280 to 300 basis points compared with prevailing market hedging costs.

In effect, the RBI is absorbing a significant portion of the currency hedging expense.

That allows banks to offer more attractive deposit rates while remaining profitable.

Not all banks, however, are offering the same rates.

One of the most common questions I receive is why one institution may offer 5.75% while another offers more than 7%. The answer often lies in funding requirements, treasury positioning, liquidity needs and growth ambitions.

Investors should always understand why a bank is offering a higher rate rather than focusing solely on the rate itself.

The most overlooked aspect of the latest RBI announcement, however, may be its decision to remove restrictions that previously prevented banks from issuing guarantees and letters of credit against FCNR(B) deposits.

This is important because it allows banks to use these deposits as collateral for financing structures.

In practical terms, the RBI has permitted banks to issue guarantees, standby letters of credit and other credit facilities against FCNR(B) deposits, making leverage possible.

The additional return generated in these structures does not come from the deposit itself. It comes from the leverage enabled by the guarantee structure.

This distinction is critical.

A traditional FCNR(B) deposit may be suitable for a conservative investor seeking enhanced US dollar income and protection from rupee depreciation.

A leveraged FCNR(B) strategy built on the same deposit may be suitable only for an aggressive investor with a higher tolerance for complexity, financing risk and liquidity constraints.

The underlying asset remains exactly the same. The risk profile does not.

Investors should also remember that these deposits typically carry maturities of three to five years. This is committed capital, not readily available liquidity. Early redemption may result in reduced interest, breakage costs, penalties or financing unwind expenses where leverage has been used.

Having advised investors through the Global Financial Crisis, the 2013 Taper Tantrum, COVID-19 and multiple interest-rate cycles, one lesson has remained remarkably consistent: attractive opportunities should enhance a portfolio, not dominate it.

FCNR(B) deposits may offer compelling risk-adjusted returns today, but they should remain part of a broader wealth strategy rather than replace one.

The RBI's latest initiative is ultimately not a story about deposits. It is a story about dollars.

India wants to rebuild reserves, support confidence in the rupee and strengthen its external balance sheet by attracting capital from one of its greatest assets the global Indian diaspora.

The opportunity is real.