Indian Banks Turbocharge Foreign Currency Deposits as RBI Absorbs Hedging Costs

Indian banks are currently offering exceptionally high interest rates on Foreign Currency Non-Resident (Bank), or FCNR(B), deposits, with some dollar rates soaring past 7.00% annually. This surge comes after the Indian government decided to completely cover the 'hedging cost' on these foreign currency deposits until September 30, 2026, making them significantly more attractive for Non-Resident Indians (NRIs) looking to save in their home currencies without rupee risk. It's a limited-time opportunity that has seen banks like HDFC, ICICI, and smaller finance banks quickly revise their offerings, making FCNR(B) a hot topic for global Indians. The Reserve Bank of India (RBI) initiated this special 'Forex Swap Facility' on June 8, 2026, primarily to shore up India's foreign exchange reserves and stabilise the Indian Rupee amid global economic uncertainties and recent geopolitical developments. By absorbing the hedging cost—which typically eats into the interest banks can offer—the RBI has enabled banks to boost rates by 150-200 basis points, effectively making these deposits far more competitive than what's available overseas. This isn't the first time India has used such a measure; a similar strategy was successfully deployed during the 2013 Taper Tantrum to attract crucial foreign capital. With this attractive window closing on September 30, 2026, the coming months are critical for NRIs considering these deposits, particularly for tenures of three to five years which are eligible for the scheme. Experts initially projected this move could draw in an impressive $50-70 billion in foreign capital, though some analysts now believe total inflows, including other related measures, could reach $80-85 billion. However, a recent moderation in inflows, partly due to rising funding costs globally, means prospective depositors should keep an eye on how banks continue to price these deposits and ensure they compare options carefully before investing.