FCNR(B) Deposits

A Foreign Currency Non-Resident Bank, FCNR(B), deposit is a term deposit maintained with an authorised dealer bank in India by an eligible non-resident in foreign currency. Unlike a rupee deposit, its principal and interest are denominated and paid in a permitted foreign currency, protecting the depositor from rupee exchange-rate movements.

Eligibility and account form

• Non-Resident Indians and Persons of Indian Origin may open FCNR(B) accounts, subject to regulations under the Foreign Exchange Management Act.
• Only term deposits are permitted; savings, current and recurring deposit accounts cannot be opened under this scheme.
• The prescribed maturity ranges from one year to five years.

Currency, returns and repatriability

• Deposits may be maintained in any freely convertible foreign currency permitted by the authorised dealer bank.
• Principal and interest are freely repatriable outside India, making these deposits a channel for mobilising foreign-currency resources.
• Interest rates are determined by banks subject to ceilings and directions prescribed by the Reserve Bank of India.
• Premature withdrawal may be allowed under the bank's policy, but no interest is payable when withdrawal occurs before the minimum one-year maturity.

Exchange risk and economic significance

Because repayment is made in foreign currency, the exchange-rate risk is borne by the bank, rather than by the depositor. Banks mobilise foreign-currency liabilities through these deposits and may use the resources in accordance with RBI regulations.

• FCNR(B) differs from an NRE account, which is denominated in Indian rupees and therefore exposes the depositor's foreign-currency return to movements in the rupee.
• Its repatriability and foreign-currency denomination make it useful for attracting non-resident savings into India's banking system.

How UPSC asks this