FCNR(B) mobilisation starts slow; banks remain optimistic on September-end targets

Among public sector banks that have disclosed their FCNR inflow goals through September 2026, Punjab National Bank shows the highest optimism | Photo Credit:
SUKREE SUKPLANG

The early enthusiasm for the FCNR (B) deposit scheme is fading, as inflows are expected to stay far beneath the $50‑70 billion projections made after its introduction. Roughly six weeks in, banks have gathered only $3‑6 billion, leading to a more reserved sentiment sector‑wide.

Among public sector banks that have revealed their FCNR inflow targets for September 2026, Punjab National Bank leads in optimism. Managing Director and CEO Ashok Chandra noted that PNB anticipates FCNR (B) deposits climbing to $2.5 billion by September, from the present $425 million. Union Bank of India aims for $1.5‑2 billion by month‑end, whereas Indian Bank, having already secured $140 million, targets $2 billion and cites a pipeline of almost $1 billion. South Indian Bank is aiming for $1 billion, and the Central Bank of India has earmarked $400 million.

Major private‑sector lenders, such as HDFC Bank, ICICI Bank, Kotak Mahindra Bank, Federal Bank and YES Bank, have not released mobilization numbers, opting to assess progress at the close of the September quarter. Nonetheless, bankers anticipate a pickup in inflows as awareness among NRIs improves and marketing efforts intensify.

Private lenders are also watching profitability. ICICI Bank warned that FCNR (B) deposits might slightly trim net interest margins due to the higher rates on foreign‑currency holdings. Federal Bank identifies strong NRI demand in the Middle East, Singapore and Hong Kong and intends to provide leverage of 8‑12 times against deposits.

The bulk of new inflows is anticipated from retail NRIs in the Gulf, especially the UAE, with additional demand from Singapore and Hong Kong. Flows from the United States and Australia are likely to stay modest, as investors in those markets have alternative fixed‑income options.

Experts stress that attractive yields alone do not guarantee NRI investment. Residence‑based tax rules, FEMA compliance, currency risk and overall portfolio strategy all play a role. Although FCNR deposit interest is tax‑free in India for qualifying NRIs, PIOs and OCIs that meet the criteria, investors must still weigh home‑country tax obligations. Consequently, interest is stronger from tax‑friendly locales like the UAE and Hong Kong, whereas US and UK investors stay more hesitant.

Margin Pressure

Private lenders are also watching profitability. ICICI Bank warned that FCNR (B) deposits might slightly trim net interest margins due to the higher rates on foreign‑currency holdings. Federal Bank identifies strong NRI demand in the Middle East, Singapore and Hong Kong and intends to provide leverage of 8‑12 times against deposits.

Yield Compression

A further dampener is the shrinking India‑US yield gap. The spread between Indian and US 3‑5‑year yields has dropped from about 650‑800 basis points in 2013 to roughly 200‑220 basis points today, eroding the carry benefit and making FCNR investments less appealing.

Meanwhile, the Central Bank of India is intensifying outreach via NRI‑focused initiatives in Kerala, Maharashtra and Gujarat. The bank remains confident of hitting its goal, backed by more than 75,500 NRI clients and 159 dedicated NRI desks

Leverage has become a key differentiator, with most Indian banks offering 8‑12 times leverage, while certain overseas players allegedly extend up to 19 times. Nonetheless, Axis Bank MD & CEO Amitabh Chaudhry stressed that client interest hinges on overall transaction economics and returns, not merely on leverage ratios.

Published on July 19, 2026