FCNR deposits are an attractive option for NRIs

NRIs are well positioned to benefit from interest rate arbitrage as they earn in global currencies and can deposit their earnings in Indian banks in global currencies without any currency risk.

Indian banks exclusively offer FCNR or FCNR(B), ie Foreign Currency Non-Resident (Bank), deposit facilities to NRIs. These deposits are available to every NRI but are mainly being accessed by High Net Worth Individuals (HNIs) only. According to the latest data from the Reserve Bank of India (RBI), NRIs hold around $14 billion FCNR deposits with Indian banks.

An NRI receiving his salary in dollars, keeps his money in local banks at low interest rates, less than 1% in most cases. Instead, it can be kept with an Indian bank at higher rates. FCNR deposits offer better returns than local resident bank deposits. Both the principal and the interest earned are fully repatriable and there is no rupee risk on such deposits as they are made in foreign currencies.

These deposits are offered in all major global currencies, with a minimum term of 12 months and usually a minimum limit of $1,000 or its equivalent (may vary from bank to bank). Interest earned on them is tax-free in India but resident country taxation is applicable as per local rules.

Leading private sector banks like ICICI Bank, SBI and HDFC Bank offer 3.30% to 4.75% for 1 to 5 year FCNR deposits in USD. IDFC First Bank offers 5.20% – 4.50% for similar deposits. In all cases, the interest is compounded half yearly.

If you are an NRI having an NRE (Non-Resident External) account, you can coordinate with your bank to make FCNR deposits. If not, you will need to open an NRE account with any major Indian bank. There are a few ways to do this (see table for details.)

What standard documents will you need? These are PAN or Form 60 (in the absence of PAN), latest passport size photograph, proof of identity, proof of NRI status and proof of address (for Indian or foreign residence). Additional verification of KYC documents, wherever applicable, should be done by one of the designated officers such as any authorized official of overseas branches of Scheduled Commercial Banks registered in India, Notary Public in the country of residence, Indian Embassy/Consulate General in the country where do you live.

Saurabh Garg has worked in NRI Wealth Management for more than 10 years. He has previously worked as an Investment Advisor with ICICI Bank and as a Private Banker with DBS Bank, Singapore.