For an overview of FCNR deposits, see FCNR deposit: rates, US tax and how it works.
Dollar deposits in India yielded 6% to 7.1%, without currency risk, during a Reserve Bank of India window that ran from June 8 to September 30, 2026. As of June 11, 2026, State Bank of India, HDFC Bank, ICICI Bank, Axis Bank and Bank of Baroda had repriced three-to-five-year U.S. dollar FCNR(B) deposits to a peak of 6%. (FCNR(B) stands for Foreign Currency Non-Resident (Bank). It is a fixed deposit that an NRI holds at an Indian bank in a foreign currency, here U.S. dollars.) Kotak Mahindra was offering 6.15% above $1 million, and AU Small Finance Bank 7.10%. Six weeks earlier, comparable deposits paid roughly 3.5%.
The increase reflects a subsidy. The economics of the deposits have not improved. The Reserve Bank of India (RBI) absorbed the full currency-hedging cost, approximately 3 to 3.5 percentage points, on fresh three-to-five-year deposits. That intervention, and no change in the value of the dollar, was what permitted banks to raise rates by as much as 300 basis points. (A basis point is one hundredth of a percentage point.)
The window was limited. Banks could book these deposits only between June 8 and September 30, 2026. A one-year lock-in applies. After the window closed, pricing on new deposits was set to revert to the unsubsidized level.
The repricing was real. The reason for it should guide how you treat it.
A rate increase engineered by the RBI, not earned in the market
In June 2026, an NRI holding dollars in a U.S. savings account earned roughly 3.8%. An Indian bank would pay 6% or more on those same dollars, in dollars, with no conversion and no rupee exposure.
The offer was a deliberate policy measure, and where it came from determines how it should be treated. If you are still deciding which NRI account type suits your money, start with choosing between NRE, NRO and FCNR.
What changed
On June 8, 2026, the Reserve Bank of India opened a dollar-rupee swap facility for banks raising fresh FCNR(B) deposits. The mechanics are technical, but they matter.
When an Indian bank accepts dollars and deploys rupees domestically, it must hedge the currency risk. That hedge costs approximately 3 to 3.5 percentage points, which the bank ordinarily subtracts from the rate offered to depositors.
The central bank agreed to bear that cost in full through September 30, 2026, and exempted these deposits from cash-reserve and statutory-liquidity requirements. With the hedging cost removed and reserves freed, a bank that could offer 3% in May could offer 6% in June while earning no less.
Lenders responded within 48 hours. SBI and HDFC Bank raised rates by as much as 295 and 260 basis points respectively. ICICI Bank and Axis Bank raised theirs by more than 300. AU Small Finance Bank raised its rate by 195 basis points, to a peak of 7.10%.
Why the RBI did this
The rupee reached a record low against the dollar in the spring of 2026, and foreign portfolio capital was leaving the country and not coming in. (The background is in our post on the rupee's slide.) The central bank needed dollar inflows to stabilize the currency and rebuild reserves.
The FCNR(B) channel was its preferred tool. The funds arrive with a multi-year lock and settle as stable deposits, unlike volatile portfolio flows.
The RBI did the same thing in 2013, during the taper-tantrum, and attracted roughly $34 billion. SBI Research projected $40 billion to $45 billion for the 2026 window. MUFG, more conservatively, projected $20 billion.
In effect, the RBI asked depositors to lend India dollars at a moment of acute need. The 6% was payment for taking part during a period of stress. It was a sound transaction if you treated it as a balance-of-payments tool and not as a permanent product. The rate was temporary, and the deadline was real.
The number: 300 basis points
The basis-point increase that created this opportunity was financed entirely by the RBI balance sheet.
That is the roughly 300 basis points (three full percentage points) that banks added to USD FCNR(B) rates within 48 hours, lifting the peak from the 3% to 4% range to between 6% and 7.10%. None of those basis points came from dollars becoming more productive or Indian banks earning more. The increase came entirely from the RBI's agreement to absorb the 3% to 3.5% hedging cost it ordinarily requires banks to carry.
The yield was a transfer payment, and the payer set an expiry of September 30, 2026. When the swap window closed, the subsidy was set to end and the rate card to reset to the unsubsidized level.
That is why the lock-in works in the depositor's favor. The depositor keeps the subsidized rate for the full term, long after the window that produced it has closed.
The constraints
Three constraints apply to these deposits.
First, the one-year lock-in is binding. No interest accrues if the deposit is broken within 12 months. Treat this as committed capital and not as a liquid reserve.
Second, the rate is fixed at booking for the full term. That is an advantage if U.S. rates decline over the next three to five years, and a cost if they rise.
Third, certain brokerages marketed a version funded with borrowed money (borrowing seven to 10 times the deposit to manufacture returns of 17% to 27%). That is a carry trade and not a deposit. For a U.S. taxpayer the tax treatment can be punitive, because gross interest is taxed at ordinary rates while financing costs may not be deductible. We take that structure apart in the leverage trap. For this post, the deposit without borrowing is the one that holds up.
How the 6% compares with a U.S. savings account, a CD and a Treasury, and what each bank paid by tenor, is in FCNR(B) against the dollar alternatives.
Playbook Move: For an NRI holding idle dollars not required for at least a year, the FCNR(B) deposit made without borrowing and booked before September 30, 2026 was among the cleanest dollar trades available during the window. It offered a subsidized yield above 6%, no currency exposure and a defined maturity. The rate varied by tenor. The large private banks (HDFC, ICICI, Axis) sat at a flat 6% across three to five years, Kotak offered 6.15% above $1 million, and AU Small Finance posted 7.10%. SBI and Bank of Baroda reached 6% only at the five-year, large-balance end of their curve.
From Edition 7 of the NRI Playbook newsletter. For informational purposes only; not financial, tax, or legal advice. For decisions about your specific situation, consult a qualified cross-border tax professional.