RBI Removes Interest Rate Cap on NRE & FCNR Deposits: Will NRIs Earn Higher Returns in 2026?

FCNR(B) Deposits

A Foreign Currency Non-Resident (Bank) deposit lets NRIs hold a fixed deposit in India in a foreign currency typically USD, GBP, EUR, or AUD instead of converting it to rupees. Because the deposit stays in foreign currency, it isn’t affected by rupee depreciation, which makes it a popular choice for NRIs who want currency protection alongside returns. 

NRE Deposits

A Non-Resident External deposit is a rupee-denominated account funded with foreign earnings. The principal and interest are both fully repatriable, and the interest earned is tax-free in India for NRIs. Because it’s held in rupees, an NRE deposit does carry an exchange rate riskShould NRIs Invest in NRE or FCNR Deposits in 2026? . Your ultimate foreign-currency return depends on where the rupee is when you convert back. If you’re unsure whether an NRE account is the right option, read our detailed comparison of NRE vs NRO Account before investing.  

RBI Removes Interest Rate Cap on NRE & FCNR Deposits: Latest Update

The Reserve Bank of India issued a set of Amendment Directions on 17 June 2026, covering commercial banks, urban co-operative banks, rural co-operative banks, regional rural banks, local area banks, and small finance banks. Here’s what actually changed:

1. Interest Rate Caps Have Been Temporarily Removed
   The Reserve Bank of India (RBI) has temporarily removed the interest rate ceiling on eligible NRE and FCNR(B) deposits. This relaxation allows banks to decide their own deposit rates without being restricted by the earlier cap. The measure will remain effective until September 30, 2026, giving banks additional flexibility to attract overseas deposits. 
2. Banks Can Offer More Competitive Returns
   Since banks are no longer bound by the previous interest rate limits, many may revise their NRE and FCNR(B) deposit rates to remain competitive. While every bank will decide its own rates, NRIs could see better fixed deposit returns compared to earlier offerings. 
3. The Move Aims to Boost Foreign Currency Inflows
   The decision is aimed at encouraging more foreign currency inflows into India. By allowing banks to offer more attractive returns, the RBI hopes to increase NRI deposits, strengthen the country’s foreign exchange position, and improve liquidity in the banking system. 
4. NRIs and OCIs Could Benefit From Better Yields
   This temporary policy change may benefit NRIs looking for secure fixed-income investment options. Individuals with foreign currency savings may find FCNR(B) and NRE deposits more rewarding, especially if banks introduce higher interest rates during the relaxation period. 
5. The Relaxation Is Time-Bound
   It’s important to note that this is a temporary RBI measure and is scheduled to remain in effect only until September 30, 2026. NRIs planning to open new NRE or FCNR(B) deposits should compare interest rates across banks and consider their options while the relaxation remains in force. 

RBI Interest Rate Cap Removal Timeline

Understanding the timeline can help NRIs plan their investments before the temporary relaxation expires.

What Does Removing the Interest Rate Cap Mean?

In simple words: earlier, no matter how much a bank wanted your FCNR(B) or long-tenor NRE deposit, RBI rules stopped it from offering you more than a fixed maximum rate. Now, for a limited period, that upper limit is gone for select tenors. Banks are free to decide their own rates within this window; some will raise them meaningfully to attract deposits, others may leave rates largely unchanged.

Why RBI Removes Interest Rate Cap on NRE & FCNR?

The short answer is capital inflows and rupee support. NRE deposits stood at roughly $7.94 billion and FCNR(B) deposits at around $946 million outstanding in FY26  a base the RBI clearly wants to grow. By letting banks compete on rates for longer-tenor deposits, the central bank is betting that more NRIs will choose to park money in India rather than elsewhere, bringing in foreign currency the country can use to support the rupee. This follows an earlier move on 5 June 2026, when the RBI also introduced a concessional foreign exchange swap facility for FCNR(B) deposits to help banks fund external commercial borrowings more cheaply.

How Will NRIs Benefit From This?

1. Higher Interest Income
   On eligible 3-year-and-above NRE deposits and 3-to-5-year FCNR(B) deposits, you could lock in a meaningfully better rate than what was available before June 2026 directly increasing your interest income over the deposit’s tenure.
2. Currency Protection
   FCNR(B) deposits remain in foreign currency throughout the tenure, so even with a higher rate on offer, you’re not taking on rupee depreciation risk to earn it.
3. Tax Efficiency
   Both NRE and FCNR(B) deposits continue to enjoy their existing tax treatment, interest is tax-free in India for NRIs, subject to your continuing to hold NRI status. The rate relaxation doesn’t change this; it simply means the tax-free interest you earn could now be larger.
4. Full Repatriation
   Principal and interest on both deposit types remain fully repatriable, so higher returns don’t come at the cost of locking your money into India permanently.

Will Every Bank Offer Higher Interest Rates?

Answer: No.

This is the part NRIs most often get wrong when they read headlines about the RBI removing rate caps. The RBI has only removed the ceiling, it has not mandated that banks raise rates.

• Every bank decides individually whether and how much to raise its FCNR(B) and NRE rates on eligible tenors.
• Some banks, particularly smaller and mid-sized ones competing hard for foreign currency deposits, may increase rates noticeably.
• Others, especially larger banks with sufficient deposit inflows already, may not change their rates much at all.
• Compare rates across at least 3-4 banks before committing, since the spread between the most and least competitive offers can be significant during this window.

NRE vs FCNR Deposits After RBI’s Latest Update

Should NRIs Invest in NRE or FCNR Deposits in 2026?

If you’re comfortable holding rupee exposure and expect to eventually use the money in India, an NRE deposit with a 3-year-plus tenor lets you take advantage of potentially higher, tax-free rates while keeping funds in rupees. If you’d rather avoid rupee volatility entirely say, you’re unsure when or whether you’ll bring the money back to India, an FCNR(B) deposit in the 3-to-5-year window lets you capture the same rate relaxation without currency risk. Many NRIs choose to split funds across both to balance yield and currency exposure rather than picking one exclusively.

If you’re planning to return to India in the near future, you should also understand how RFC Accounts compare with FCNR Accounts before locking your deposit. 

Things Investors Should Consider

• The window is short. The relaxation applies only to deposits opened or renewed between 17 June 2026 and 30 September 2026 after that, the earlier caps return unless RBI extends the relief.
• NRO-to-NRE transfers are excluded. The higher-rate benefit applies to fresh NRE deposits and renewals, not to funds moved over from an NRO account.
• Rates vary widely by bank. Since the RBI hasn’t mandated a rate, it’s worth checking rate cards across 3-4 banks including smaller private and foreign banks before locking in.
• Tenure matters. Only 3-year-and-above NRE deposits and 3-to-5-year FCNR(B) deposits are covered; shorter tenors remain governed by the earlier rate ceilings.
• Your residential status affects taxation. The tax-free treatment on NRE/FCNR(B) interest applies only while you continue to qualify as an NRI under Indian tax rules worth double-checking if your travel pattern has changed recently.

Impact on Indian Banks

The RBI’s decision is expected to create new opportunities for Indian banks to attract more overseas deposits and strengthen their foreign currency funding. With greater flexibility in setting deposit rates, banks can compete more effectively for NRI funds and improve their overall liquidity position.

As a result, many banks may:

• Increase NRE and FCNR(B) deposit offerings for NRIs.
• Strengthen their foreign currency deposit base.
• Improve liquidity by attracting additional overseas funds.
• Launch competitive deposit schemes and promotional campaigns to attract more NRI customers.

Over the coming months, banks are likely to revise their deposit rates and actively promote NRE and FCNR(B) fixed deposits while the RBI’s temporary relaxation remains in effect.

Final Thoughts

The RBI removing the interest rate cap on NRE and FCNR deposits is a genuine opportunity for NRIs to lock in better, tax-free returns  but it’s a limited-time, bank-by-bank opportunity, not an automatic rate hike everywhere. If you have funds you were already planning to park in a 3-year-plus NRE or FCNR(B) deposit, it’s worth comparing current rate cards across a few banks before 30 September 2026, rather than renewing on autopilot with your existing bank.

Not sure whether an NRE or FCNR(B) deposit fits your situation, or how this affects your overall NRI tax planning? Talk to our NRI tax team at NRITaxs.com before you lock in a new deposit.