For an overview of FCNR deposits, see FCNR deposit: rates, US tax and how it works. We have covered leveraged FCNR three times as the offers changed: June 2026, July 2026 and August 2026, through GIFT City.
Between June 8 and September 30, 2026, Indian banks paid 6% to 7.1% on three-to-five-year U.S. dollar FCNR(B) deposits, the foreign-currency fixed deposits that NRIs hold at Indian banks. The Reserve Bank of India covered the banks' currency-hedging cost on deposits booked by September 30, 2026, and that subsidy lifted the rate.
The plain deposit is covered in FCNR(B) rates at 6% to 7.1%. This post is about a different product that is being sold alongside it.
Why the "17% to 27%" circulating in brokerage notes is not your number
A second pitch circulated alongside the deposit. A Jefferies report projects U.S. dollar returns of 17% to 27% by adding leverage to the same FCNR(B) deposit.
An NRI posts equity and borrows seven to 10 times that amount overseas against a Standby Letter of Credit (SBLC, a bank guarantee). The NRI places the combined sum on deposit and collects the spread between the Indian yield and the lower borrowing cost. The Reserve Bank has expressly permitted the SBLC structure that makes this possible. The arithmetic, on its own terms, is sound.
Where the return comes from
In Jefferies' own model, the deposit yield is held constant at 6.5% across every scenario. Leverage and borrowing cost move the return from 17% to 27%. The deposit never does. The deposit earns 6.5% and serves as collateral for a carry trade (borrowing at a lower rate to earn a higher one). The leverage is the product.
The same multiplier that turns a 1.5-point spread into a 17% gain turns a modest rise in the variable borrowing cost into a comparable loss. That loss falls on principal you remain personally liable to repay, locked for the term, with no clean exit.
Jefferies concedes the weakness in its own comparison. The rate differential between India and the U.S. that powered the 2013 version, roughly 8.5 percentage points, had compressed to about 2.4 by June 2026. The firm argues the RBI's full hedging subsidy compensates but, in its words, "especially for leveraged structures."
Read plainly, that is an admission that the attractive return now depends on the leverage rather than on the rate. You cannot obtain the 27% without the leverage that makes it dangerous.
The U.S. tax problem
A U.S. taxpayer faces a further problem, and it is decisive. No India-focused source has reason to model it. The full gross deposit interest is taxable on your U.S. return at ordinary rates.
The interest on the borrowed funds is investment-interest expense. It is deductible only against net investment income and only if you itemize, and it is readily limited or disallowed. The table takes the most modest case in the Jefferies table, 7× leverage at a 1.5-point spread.
| 7× Leverage · 1.5% Spread · $100,000 Equity | |
|---|---|
| Gross deposit interest ($800,000 × 6.5%) | $52,000 |
| Interest cost on borrowing ($700,000 × 5%) | −$35,000 |
| Pre-tax net (the "17%") | +$17,000 |
| U.S. tax on $52,000 gross, at ~47.2% marginal | −$24,528 |
| After-tax, if financing fully deductible | +$8,981 (+9.0%) |
| After-tax, if financing not deductible | −$7,528 (−7.5%) |
The marginal rate is illustrative: 37% federal + 3.8% NIIT (Net Investment Income Tax) + 6.37% New Jersey. Pre-tax figures are Jefferies' published 7×/1.5% case. Individual circumstances vary. This is illustration, not tax advice.
The 17% to 27% is a pre-tax figure. It holds for an NRI who is not a U.S. person, for instance an Indian citizen in a zero-tax jurisdiction. It does not hold once U.S. tax applies.
The U.S. exposure also follows the person, not the address. Any U.S. citizen or green-card holder owes tax on this interest as worldwide income wherever they reside. An NRI in Dubai who holds a U.S. passport is in the same position as one in New Jersey.
For that depositor, the U.S. tax on the gross interest can exceed the pre-tax spread. India levies no tax on FCNR(B) interest, so there is no foreign tax credit to offset it. The headline return is not your number.
Reading the table line by line
The table is short, and each line carries one step of the argument. The steps below follow it in order.
- The deposit is eight times your money. You put in $100,000 and borrow $700,000, so $800,000 sits on deposit at 6.5% and earns $52,000 a year.
- The loan costs $35,000. That is $700,000 at 5%. The borrowing cost is variable, so this is the line that can move against you.
- What is left is $17,000. Set against your $100,000 of equity, that is the 17% in the brokerage note.
- The IRS taxes the $52,000, not the $17,000. At the illustrative 47.2% marginal rate, that is $24,528 of tax before any deduction for the financing cost.
- The deduction decides the outcome. If the $35,000 of financing interest is fully deductible, you keep $8,981, a 9.0% return. If it is not deductible, you lose $7,528, a return of −7.5%.
The pre-tax figure is the same in both outcomes. The only difference between a 9.0% gain and a 7.5% loss is how your own return treats the financing interest. The playbook move below starts with that question.
Reporting follows the gross deposit
The deposit is a foreign financial account, and the amount that counts for reporting is the full leveraged balance. In the example above that is $800,000, not the $100,000 of equity. The reporting rules are set out in the $10,000 FBAR threshold and FATCA Form 8938.
A cross-border tax consult can answer the deductibility question for your own return before you sign anything.
Playbook Move: Treat the leveraged structure as a professional-grade transaction distinct from the deposit, not an enhancement of it. Before engaging, confirm in writing whether your financing interest is deductible in your specific situation. Model the position assuming your variable borrowing cost rises rather than falls. Price the FBAR and Form 8938 obligations on the gross leveraged deposit, not your equity. For most U.S. persons (citizens and green-card holders alike, wherever resident), the unleveraged deposit captured the genuine opportunity in this window. The leverage layer adds tax and rate risk that the headline return does not disclose.
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.