NRIs who locked into FCNR(B) deposits just before the RBI’s new swap window are earning under 4%, while fresh deposits now fetch up to 7.1%. Banks have asked the regulator to let them break and rebook; here’s what it would take and whether it’s worth it.
Key Takeaways
- Commercial banks have formally asked the RBI to let existing NRI customers prematurely close and rebook FCNR(B) deposits under the new special scheme.
- The RBI’s June 2026 swap window applies only to fresh deposits and maturity renewals, leaving recent depositors stuck near 3.35%–4%.
- Fresh three- to five-year FCNR(B) deposits now fetch roughly 6%–7.1% after the RBI began bearing the hedging cost.
- Banks fear close to $1 billion in premature withdrawals, with some prime NRI clients already moving funds to rival lenders.
- Breaking a deposit isn’t free: all interest is forfeited inside the one-year lock-in, and a 1 percentage-point penalty applies after that.
Banks push the regulator to reopen the door
Commercial banks have formally sought the Reserve Bank of India’s approval to let existing non-resident Indian (NRI) customers prematurely close and rebook their FCNR(B) deposits so they can move on to the much higher rates on offer under the central bank’s new dollar-deposit scheme.
The pressure is coming from depositors themselves. Some prime NRI clients are already breaking older deposits and shifting the money to rival banks, and lenders worry about losing both the funds and the relationship.
Bankers say they are “buying time” with these customers in the hope the RBI relents. The RBI has not commented publicly.
Why recent depositors are stuck
The catch sits in the scheme’s design. The RBI’s incentive, announced on 5 June and operationalised through a circular dated 8 June 2026, covers only fresh FCNR(B) deposits mobilised between 8 June and 30 September 2026, plus deposits renewed on maturity.
Anyone who booked in the two to three months before the window opened is left out and keeps earning the old rate. Those depositors are the most aggrieved; they missed a far better deal by a matter of weeks.
How the swap window works, and why rates jumped
Under the scheme, the RBI swaps the underlying dollars at par: banks sell dollars to the central bank now and buy them back at the same exchange rate when the deposit matures.
In effect, the RBI absorbs the hedging cost, the single biggest expense in raising a dollar deposit, which lets banks pass the benefit on to depositors.
The RBI followed up on 17 June by temporarily removing the interest-rate ceiling on fresh three- to five-year FCNR(B) deposits (and on three-year-plus NRE deposits) until 30 September and exempted these deposits from CRR and SLR. Banks can tap the swap facility until 16 October 2026.
The result has been a sharp, immediate jump in advertised rates:
| Bank | Earlier USD rate (3–5 yr, approx.) | Under the new scheme | Effective |
|---|---|---|---|
| AU Small Finance Bank | ~5.15% | 7.10% | Jun 11, 2026 |
| Yes Bank | ~3.35% | 6.60% (5-yr) | Jun 11, 2026 |
| ICICI Bank | ~3.35%–4% | 6.00% | Jun 11, 2026 |
| HDFC Bank | ~3.35%–4% | 6.00% | Jun 10, 2026 |
| State Bank of India | ~3.35% | 6.00% | Jun 2026 |
| Bank of Baroda | ~3.35% | 6.00% (USD) | Jun 11, 2026 |
| Kotak Mahindra Bank | ~3.35% | 6.00% / 6.15% | Jun 11, 2026 |
Kotak: 6.00% under $1 million, 6.15% above. ICICI has separately advertised 6.5% on NRI fixed deposits, which may refer to an NRE (rupee) product; confirm the USD FCNR rate with the bank. Rates are indicative as of 11 June 2026; verify current rates and tenor bands directly with your bank before booking.
The break-and-rebook math: is it worth it?
Whether breaking an existing deposit pays off depends mostly on how long it has already been running. FCNR(B) deposits carry a one-year lock-in; pull out inside that year and you forfeit all interest. After a year, banks deduct one percentage point from your contracted rate on premature withdrawal.
| Your existing deposit | Cost to break it now | Does rebooking make sense? |
|---|---|---|
| Booked < 12 months ago | All interest forfeited (inside lock-in) | Rarely, you lose everything earned so far. Usually better to wait out the lock-in. |
| Booked > 12 months ago | ~1 percentage point off your contracted rate | Often yes, the new rate is ~200–375 bps higher over 3–5 years, typically outweighing the penalty. |
| Maturing on/before 30 Sep 2026 | Nothing renews on maturity | Best path, renewal qualifies, with no penalty and the full new rate. |
| The Eligible window already passed | — | Scheme closed to new money; no action available. |
Illustrative example: say you booked a five-year USD deposit 18 months ago at 3.5%. Breaking it now triggers the 1% penalty, so you effectively earned about 2.5% for those 18 months.
Rebook the same money at 6% for a fresh term and you earn roughly 2.5 percentage points more for the next five years, which, for most depositors past the lock-in, more than offsets the one-time penalty.
The longer your existing deposit has run at the low rate, the smaller the remaining gain.
This is why depositors who booked recently are willing to forgo the interest and why banks estimate close to $1 billion could move if the RBI does not allow penalty-free rebooking.
Banks say they cannot stop a customer who is prepared to bear the penalty; the right to exit after one year already exists.
Scheme parameters at a glance
| Parameter | Detail |
|---|---|
| Scheme launch | June 8, 2026 (operational circular) |
| Eligible deposit window | June 8 – September 30, 2026 |
| RBI swap access deadline | October 16, 2026 |
| Eligible tenor | 3 to 5 years |
| Minimum swap size | USD 1 million |
| Lock-in | 1 year from deposit date |
| CRR / SLR | Exempt (eligible deposits) |
| Currencies accepted | Any freely convertible currency |
| RBI swap currency | US dollar only |
| Existing in-tenure deposits | Not covered (fresh + maturity renewals only) |
Why it matters beyond NRI savings
This is as much an external-sector story as a personal-finance one. The scheme is a direct response to a collapse in inflows: FCNR(B) deposits fell from $7.08 billion in FY25 to just $946 million in FY26.
By reviving dollar inflows, the RBI strengthens banks’ foreign-currency funding and eases pressure on the rupee, the same flow picture that moves alongside foreign-investor activity. Analysts estimate the broader measures could draw $60–70 billion.
The 2026 push echoes the RBI’s 2013 swap window, which pulled in around $30 billion when the rupee was under strain.
For equity investors the impact is indirect but real: stronger inflows support the rupee and can lift sentiment toward banks and financials, though aggressive deposit pricing also bears watching for its effect on net interest margins.
Track the daily flow picture on NiftyTrader’s FII–DII Activity tool », and pair it with Bank Nifty levels to see whether banking stocks are reacting to liquidity, the rupee, or rate expectations.
Bottom line
For NRIs booking now, the swap window is a clear win, close to double the old return, with the RBI carrying the hedging cost.
For those who locked in just before 8 June, it’s a frustration.
Until the RBI signals whether it will extend eligibility to existing deposits, breaking and rebooking only makes sense after the lock-in, once the forward rate gain clearly beats the 1% penalty. Watch for an RBI clarification before acting.
FAQs
Can I break my existing FCNR deposit to grab the new higher rate?
You can if you’re willing to bear the cost, banks cannot stop you. But inside the one-year lock-in you forfeit all interest, and after that a 1 percentage-point penalty applies. The RBI’s higher-rate scheme currently covers only fresh and renewed deposits, so existing money does not automatically qualify.
Who is eligible for the new FCNR(B) rates?
Fresh FCNR(B) deposits booked between 8 June and 30 September 2026, plus eligible deposits renewed on maturity, with three- to five-year tenors.
What rates are banks offering now?
Roughly 6%–7.1% on three- to five-year US-dollar deposits, up from about 3.35%–4% earlier. Figures are indicative, confirm the current rate with your bank.
When does the window close?
New deposits must be booked by 30 September 2026. Banks can access the RBI swap facility until 16 October 2026.
Disclaimer: This article is for information only and is not investment, tax or deposit advice. Verify all rates and terms with your bank and the RBI before acting.
