NRI deposits: NRE, NRO and FCNR(B): notes for bank exams

At a glance

Non-resident Indians (NRIs) can keep money in Indian banks through three main accounts. NRE and NRO accounts are held in rupees; FCNR(B) deposits are held in a foreign currency. The choice decides whether the money can be sent back abroad freely, whether the interest is taxed in India and who carries the risk of a rupee fall.

Key facts

Governing law: Foreign Exchange Management Act (FEMA), 1999, and the RBI's deposit regulations under it
NRE: Non-Resident (External) rupee account for money earned abroad; savings, current or term deposit
NRO: Non-Resident (Ordinary) rupee account for income earned in India (rent, pension, dividends); savings, current or term deposit
FCNR(B): Foreign Currency Non-Resident (Bank) account; term deposits only, of 1 to 5 years, in freely convertible foreign currencies
Repatriation: NRE and FCNR(B) principal and interest are freely repatriable; NRO balances only up to US$1 million per financial year (current income such as interest, net of tax, is repatriable)
Indian tax on interest: exempt on NRE and FCNR(B) for a non-resident; taxable (with TDS) on NRO
Exchange risk: depositor bears it on NRE and NRO; the bank bears it on FCNR(B)
2013 FCNR(B) swap window: 4 September to 30 November 2013, concessional 3.5% a year; with a bank-borrowing swap it raised about US$34 billion
2026 FCNR(B) swap window: opened 8 June 2026 for fresh 3–5 year deposits; fresh deposits stopped on 31 August 2026

How it works

Feature	NRE	NRO	FCNR(B)
Currency	Indian rupee	Indian rupee	Foreign currency
Source of funds	Earned abroad	Earned in India (or abroad)	Earned abroad
Account types	Savings, current, term	Savings, current, term	Term only (1–5 years)
Repatriation	Free	Limited (US$1 million a year)	Free
Interest taxed in India	No	Yes	No
Exchange risk	Depositor	Depositor	Bank

Why FCNR(B) matters to the RBI. Because the bank owes the depositor dollars (or euros, pounds and so on), a falling rupee hurts the bank, not the NRI. Banks therefore hedge, which is costly. In a rupee crisis the RBI can offer banks a swap: the bank hands over the dollars, gets rupees and buys the dollars back at maturity at a pre-set rate, so the RBI absorbs the hedging cost. Banks can then offer higher rates, NRI dollars flow in and reserves rise. In 2013 the swap was at a concessional 3.5% a year; in 2026 both legs were at the FBIL reference rate, so the RBI bore the full cost.

Side effect for banks. FCNR(B) money is term money, so a bank that raises a lot of it shifts away from cheap CASA deposits and its net interest margin can fall.

Timeline

1999: FEMA replaces FERA; NRI accounts move under FEMA rules
2013: FCNR(B) swap window (September–November) during the taper-tantrum rupee slide
2026: FCNR(B), ECB and overseas-borrowing swap windows reopened on 8 June; FCNR(B) part closed to fresh deposits on 31 August

Recent developments

24 Oct 2026: Kotak Mahindra Bank said its Q2 FY27 net interest margin fell to 4.31% from 4.54% because it raised about ₹55,344 crore of FCNR(B) deposits under the RBI's swap facility.
2 Sep 2026: Provisional inflows under the 2026 swap facility reached about US$136.4 billion by 31 August, of which about US$127.2 billion came through FCNR(B) deposits.
31 Aug 2026: The FCNR(B) swap window stopped taking fresh deposits (swaps could be availed until 11 September).
8 Jun 2026: The RBI opened a USD/INR swap for fresh 3–5 year FCNR(B) deposits.

Exam traps

FCNR(B) is a foreign-currency deposit; NRE is a rupee deposit even though the money came from abroad.
On FCNR(B) the bank bears exchange risk; on NRE the depositor does.
FCNR(B) has no savings account: it is term deposits of 1 to 5 years only.
NRO is the only one of the three whose interest is taxable in India and whose repatriation is capped (US$1 million a year).
The 2013 window was opened on Raghuram Rajan's first day as Governor, 4 September 2013.

Quick check

Q: Who bears the exchange-rate risk on an FCNR(B) deposit? A: The bank.
Q: What is the maximum tenure of an FCNR(B) deposit? A: Five years.
Q: Up to how much can an NRI repatriate from NRO balances in a financial year? A: US$1 million.

NRI deposits: NRE, NRO and FCNR(B)