Domestic banks do not expect significant FCNR(B) deposit inflows from the US under the Reserve Bank of India’s (RBI) latest incentive scheme, as many non-resident Indians (NRIs) there remain wary due to stricter tax scrutiny and compliance challenges following the 2013 programme, according to three bankers familiar with the matter.
Several US-based NRIs who had invested in foreign currency non-resident (bank), or FCNR (B), deposits back then allegedly failed to disclose the interest income to US tax authorities, leading to penalties and compliance headaches later. Given these concerns, the bankers cited earlier said they do not expect substantial dollar inflows from the US.
The RBI had launched a similar forex deposit scheme in 2013 to support the rupee, which had weakened after the US Federal Reserve announced tapering of its bond purchases, reducing the pace of liquidity infusion into the financial system. Indian banks mobilized $26 billion through FCNR(B) deposits in 2013 and were initially expected to attract $30-40 billion this time to once again support the rupee, which has come under pressure from the West Asia conflict.
“People have burnt their fingers last time, and will be more careful now,” said the first of the three bankers cited above, all speaking on condition of anonymity.
While official data on the share of inflows from the US in 2013 is unavailable, bankers estimated that 70-75% originated from West Asia. This time, a similar proportion, if not more, is expected to come from outside the US, led by the Gulf region and Singapore, they added.
The second banker said that banks have got about $5-7 billion so far, while the third banker said that most PSU banks, barring SBI (State Bank of India), have got in millions. “Some private banks have got a couple of billion dollars.”
The third banker said that regulations under the US Foreign Account Tax Compliance Act (FATCA) are much stronger now. This law, effective 2014, requires foreign financial institutions and certain other non-financial foreign entities to share information on the foreign assets held by their US account holders.
According to the second banker, while the initial deposit momentum is slower than expected, it will pick up in the coming months.
Mint reported on 13 July that banks are selectively choosing FCNR(B) deposits from NRIs with over $1 million, as overseas funding costs rise. Smaller leveraged deposits are becoming infeasible, which could undermine India's goal of attracting $30-40 billion in inflows.
The scheme, announced on 5 June and valid till 30 September, allows banks to raise FCNR (B) deposits of three to five years and swap the dollars with the RBI at a concessional rate.
The government and the central bank have been trying to drum up support for the scheme meant to raise dollar inflows into the world’s sixth-largest economy to aid its local currency. The central bank has asked banks to report daily data on FCNR deposits and met lenders on Tuesday. The meeting, chaired by RBI governor Sanjay Malhotra, also included the deputy governors and executive directors. Malhotra urged banks to continue to meet the needs of all segments and sections of the economy with renewed vigour and prudence, a statement by the central bank said. The statement had no mention of any discussion on FCNR deposits.
On Monday, Union finance minister Nirmala Sitharaman met chiefs of state-owned banks, calling for enhanced NRI outreach.
Tax experts said that under the FATCA, US residents are taxed on global income, regardless of where it is earned.
“Different jurisdictions have different regulations, but US regulations are very far-reaching in terms of scope of taxable income, as well as reporting, and with a very wide tracking architecture and the consequences of non compliance are also quite harsh,” said Ketan Dalal, managing director at boutique structuring and advisory firm Katalyst Advisors.
Dalal, a veteran cross-border tax expert with over four decades of experience, said US residents would be far more cautious about parking funds in India's FCNR(B) deposits this time, following the compliance challenges allegedly faced by some investors in 2013 and the possibility that US authorities may still have records of past violations.
He said the US has a track of foreign accounts and income, but for fully compliant individuals, this may not be much of a concern. Still, the compliance requirements remain an irritant that could dampen interest among US-based NRIs.
The second banker said that Indian lenders are trying to route their dollar mobilization and deposits through the Gift City in Gujarat. He said bankers fear that foreign jurisdictions, especially the US, could ask why their banks are lending for unproductive purposes—for deposits and not for asset creation—and that too outside the US.
“The branches in overseas jurisdictions are under foreign regulators, while Gift City is under the ambit of International Financial Services Centres Authority,” said the banker cited above.
Under the RBI's leveraged FCNR deposit scheme, an NRI holding a dollar deposit at a foreign bank can pledge the deposit and borrow up to nine times the amount; the original deposit and the borrowed amount can then be combined and invested in an FCNR account in India. For example, someone with a $1 million deposit can borrow $9 million, and invest a combined $10 million in an Indian FCNR account.
Others agreed that West Asia is where most of the inflows are likely to come from.
“The Gulf remains the biggest source of potential flows. But if banks focus only on high-ticket deposits, that could become a constraint because not all of the diaspora falls into that category,” said Dhiraj Nim, foreign exchange strategist at ANZ, a bank.
“If you go to any global financial centre today, interest rates are much higher than they were the last time. It’s not just US rates, and if anything, rates are expected to move higher. That challenge will remain,” Nim said.
Banks mobilized $166 million in fresh FCNR(B) deposits in April 2026, while the outstanding FCNR(B) deposit base stood at $33.92 billion at the end of April, up from $33.76 billion a month earlier, latest RBI data showed. Overall, NRI deposits across FCNR(B), non-resident external (NRE) and non-resident ordinary (NRO) accounts stood at $165.59 billion, indicating that FCNR(B) deposits account for roughly one-fifth of the total NRI deposit base. Updated data is unavailable as it comes with a lag.