FCNR deposits are a 'no-brainer' for NRIs, so what may be holding them back? Zerodha's Nithin Kamath explains

Zerodha's co-founder Nithin Kamath has flagged lengthy account-opening procedures as a major hurdle that may prevent non-resident Indians (NRIs) from taking advantage of FCNR deposits, which he described as a “no-brainer” investment opportunity amid favourable interest-rate conditions.

“Onboarding for NRIs has always been a pain. Right now, the FCNR deposit scheme is a total no-brainer: the RBI is bearing the currency hedging bill, allowing you to get local, FD-like rates while your money stays in dollars with zero rupee risk,” Kamath said in a LinkedIn post on Wednesday.

Despite how good the deposit scheme is, it offers little benefit if opening an account takes 60 days, he added. “By the time the paperwork clears, the window might have closed, or the NRI may have lost interest.”

RBI's push to attract foreign inflow

Kamath's remarks come after the Reserve Bank of India (RBI) announced a special swap facility last month allowing banks to raise FCNR deposits without bearing the cost of protecting themselves against rupee swings.

To make this facility even more attractive, the apex bank subsequently clarified that commercial banks are now allowed to provide loans to overseas Indians or issue standby letters of credit in favour of foreign lenders, against FCNR-B deposits mobilised in the country.

Nithin Kamath also shared that Rupeeflo, a financial super-app designed for NRIs and Overseas Citizens of India (OCIs), is trying to solve this problem. The startup has partnered with major banks to slash the 60-day onboarding period down to just 24 hours, covering the bank account, trading account and demat.

He also wrote: “It will be interesting to watch what happens to activation rates once friction is this low. Does removing the 60-day wait actually change NRI behavior, or does the inertia live somewhere else entirely?”

According to Zerodha's website, the brokerage firm has partnered with Rupeeflo to assist NRIs with attesting or notarising documents. An indivudla can use this service if they are an NRI in the US, Singapore, UAE, Saudi Arabia and all European countries.

Commenting on Kamath's post, the founder of Rupeeflo, Dharmendra Maurya said in a statement: “The biggest barrier to NRI investing today isn't intent - it's purely execution. Most NRIs have already decided they want to participate in India's growth story. What slows them down is a fragmented onboarding experience spread across multiple institutions, manual documentation, and a lack of visibility into the process,”

“That's how a straightforward decision turns into a 60-day ordeal - and why 60 to 75 percent of that intent evaporates before it ever converts," he added.

How Indian banks responded to the RBI's move?

Within a week of RBI's announcement, most lenders increased rates on FCNR deposits. HDFC Bank, ICICI Bank, Axis Bank and Bank of Baroda are now offering a peak rate of 6% on three-to-five-year deposits, in some cases a jump of close to 300 basis points from where they stood. ICICI and Axis raised rates by as much as 310 and 305 basis points, respectively.

When a bank receives a US dollar FCNR deposit, it converts the money into rupees and lends it to Indian borrowers, earning interest higher than what they pay out to the NRI. This exposes the bank to the risk of the rupee weakening before the deposit matures, so banks typically protect against this risk by hedging the currency mismatch.

Under the current scheme, however, the RBI will bear the hedging cost, effectively removing the currency risk for banks.