FOREIGN CURRENCY NON-RESIDENT BANK (FCNR(B)) DEPOSITS

NEWS: RBI decided to bear the full hedging cost on fresh FCNR(B) deposits till September 30àto attract NRI dollar deposits and support the rupee.

CONTEXT

  • When NRIs place dollars with Indian banksà banks receive dollar funds.
  • These inflows can help improve foreign currency availability in the system and reduce some pressure on the rupee.

FCNR(B) Deposit

  • Fixed deposit that non-resident Indians can hold in foreign currency (US dollar, pound, euro, yen, Canadian dollar or Australian dollar) with Indian banks.
  • These accounts allow NRIs to deposit money in foreign currency without converting it into Indian Rupees, thereby protecting them from exchange rate fluctuations.
  • The deposits offer tax-free interest income, full repatriability of principal and interest, and protection against exchange rate fluctuations.
  • Hedging Costà Refers to the expense incurred by banks to protect themselves against currency fluctuation risk while converting foreign currency deposits into rupees for domestic deployment.
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