Finance Minister Smt. Nirmala Sitharaman is scheduled to meet heads of public sector banks (PSBs) on Monday to review the progress of the foreign currency deposit mobilisation. As per sources, the Finance Minister will chair a meeting of public sector banks and financial institutions on mobilisation of FCNR(B) deposits, Overseas Foreign Currency Bonds and External Commercial Borrowings on July 13.
What’s this: Let’s understand
The government and the Reserve Bank of India (RBI) want more foreign currency to come into India. Finance Minister Nirmala Sitharaman will meet the heads of Public Sector Banks to review what banks are doing to attract foreign currency deposits and overseas funds.
FCNR(B) means Foreign Currency Non-Resident (Bank) Deposit. It is a type of fixed deposit mainly for NRIs. For example, an NRI living in the USA can keep money in an Indian bank as a US Dollar FCNR deposit. Similarly, eligible foreign currencies can be deposited under the FCNR(B) scheme.
The main benefit is that the deposit is maintained in foreign currency. Therefore, the NRI depositor does not directly face the same rupee exchange-rate risk on the principal and interest when the deposit is maintained and repaid in that foreign currency.
What is the problem?
Foreign currency deposits coming into Indian banks have fallen sharply. Net FCNR(B) inflows declined from USD 7.1 billion in FY25 to only USD 946 million in FY26. This means Indian banks received much less net foreign currency through FCNR(B) deposits compared with the previous year. The government and RBI now want to increase these deposits.
What has RBI done?
RBI has temporarily removed the interest rate ceiling on fresh FCNR(B) deposits with a maturity of 3 to 5 years until September 30. In simple words, banks have been given more flexibility to offer attractive interest rates on these deposits.
For example, if the earlier rules restricted how much interest a bank could offer, the temporary relaxation gives banks greater freedom in pricing eligible new FCNR(B) deposits. The purpose is to encourage NRIs, OCIs and Persons of Indian Origin to keep more foreign currency in Indian banks.
But why do banks face a risk in FCNR deposits?
Suppose an NRI deposits USD 1 million with an Indian bank. The bank receives dollars, but much of its lending and business is in Indian rupees. The value of the dollar and rupee can change over time. Therefore, the bank has to manage or hedge the foreign exchange risk. Hedging can be costly.
How is RBI helping banks?
RBI is offering banks a concessional foreign exchange swap facility for eligible FCNR(B) deposits of 3 to 5 years. In simple words, RBI is helping banks manage foreign currency risk at a lower cost. Because the hedging cost is reduced, banks may find it more attractive to collect FCNR(B) deposits from NRIs.
So the basic idea is:
NRI deposits foreign currency → Bank receives dollars or other eligible currency → RBI helps reduce the bank’s forex hedging cost → Bank can more actively mobilise foreign currency deposits.
Why does India want more foreign currency inflows?
The whole exercise is mainly about increasing foreign currency inflows into India and helping banks and PSUs access overseas funds at competitive costs. There are two major routes:
- NRIs → FCNR(B) deposits → Indian banks
- Foreign lenders/markets → ECBs and overseas bonds → Indian PSUs and institutions
The Finance Minister is now reviewing how Public Sector Banks are using this opportunity to mobilise more foreign currency deposits and overseas funds.
What are ECBs?
ECB means External Commercial Borrowing. It simply means an Indian company or eligible entity borrows money from foreign lenders or overseas markets, subject to applicable rules. For example, an Indian Public Sector Undertaking may raise USD 500 million from overseas lenders. RBI has also announced a concessional forex swap facility to encourage PSUs to raise ECBs until September 30, 2026. According to the report, there is around a 3% cost advantage, which may encourage some public sector companies to raise overseas funds earlier than planned.
