The Reserve Bank of India has temporarily withdrawn the interest rate cap on fresh foreign currency non-resident (Bank) deposits of 3-5 years' maturity till 30 September, allowing banks greater flexibility to offer higher returns on such deposits to attract foreign capital.

It has also removed restrictions on interest rates on fresh non-resident external (NRE) deposits of 3 years and above tenors, including deposits that are renewed upon maturity, till 30 September.

"The interest rate ceiling applicable to fresh FCNR(B) deposits mobilised by banks, including the deposits that are renewed upon maturity, for three years and above -- up to and including five years tenors, is temporarily withdrawn with effect from June 17, 2026, for the period until September 30, 2026," the central bank said in a circular.

Transfers from non-resident ordinary (NRO) accounts to NRE accounts, however, will not qualify for the exemption.

Prior to the amendment, banks had to ensure that interest rates on NRE deposits did not exceed those offered on comparable domestic rupee term deposits. FCNR(B) deposits in the three-to-five-year bucket were subject to an interest rate ceiling linked to the applicable overnight alternative reference rate or swap rate plus 350 basis points.

Deposits with maturities of one year to less than three years will continue to have the cap of the overnight alternative reference rate or swap rate plus 250 basis points.

Following the RBI’s swap facility, banks have hiked interest rates on their FCNR deposits. State Bank of India (SBI), HDFC Bank, ICICI Bank and Axis Bank are offering rates of up to 6% on three-to five-year deposits with maturities ranging from three to five years.

While Kotak Mahindra Bank is offering  6% for 3-5 year deposits less than USD 1 million, and 6.15% for deposits more than $1 million.

For a five-year tenor, Yes Bank is offering FCNR (B) deposit rate of 6.6%.

Earlier this month, the Reserve Bank of India (RBI) had introduced a slew of measures to attract foreign capital amid a depreciating rupee against the US dollar. 

Foreign individual investors were allowed to directly purchase shares in listed Indian companies. This had widened the pool of investors to persons resident outside India, beyond non-resident Indians (NRIs) and overseas citizens of India (OCIs). 

The RBI also offered a concessional forex swap facility bearing full hedging cost for fresh FCNR (B) deposits with 3-to-5-year maturities until 30 September. Banks could also avail the swap facility for external commercial borrowings raised by public sector entities during this special window.

The RBI’s measures are aimed at boosting foreign capital inflows and supporting the rupee, which has been on a declining path since last year.