3 days ago
After August 31, NRIs Weigh FCNR Rates Against Dollars Abroad
NRIs are deciding whether to put their foreign money into Indian FCNR(B) deposits or keep it overseas.
A special Reserve Bank of India facility helped banks offer unusually high FCNR rates.
Some special rates reached about 6-7%, but that facility ends on August 31.
Afterward, ordinary FCNR rates may be closer to 4-4.5%.
FCNR deposits can provide a predictable foreign-currency return without direct exposure to the Indian rupee.
However, the money may need to stay locked away for three to five years.
Keeping dollars abroad can make it easier to use the money or invest around the world.
NRIs should compare taxes, returns and how quickly they may need the money.
The Reserve Bank of India’s special FCNR(B) swap window is scheduled to close on August 31.
Special FCNR(B) rates reportedly reached about 6-7% for some currencies and tenures.
After the window closes, regular FCNR(B) rates could fall to roughly 4-4.5%.
FCNR(B) deposits offer fixed foreign-currency returns, repatriability and generally tax-exempt interest in India for eligible NRIs.
Keeping dollars abroad may provide greater liquidity and access to global investments, but tax and currency factors must be assessed.
- Who
- Non-resident Indians, with views from finance professionals Sneha Kejriwal and Ankur Choudhary.
- What
- They must decide whether to use FCNR(B) deposits or retain dollar-denominated funds abroad as special rates change.
- Where
- The comparison involves FCNR(B) deposits in India and dollar holdings abroad, including for UAE-based NRIs.
- When
- The special swap window is scheduled to end on August 31; no year is specified.
- Why
- The special window may end unusually high FCNR rates, making post-window returns, taxes, currency exposure and liquidity more important.
Case for FCNR(B) Deposits
Case for Dollars Abroad
Returns and predictability
Case for FCNR(B) Deposits
FCNR(B) deposits can provide fixed, predictable foreign-currency returns, and special rates were reported at about 6-7% before the window closes.
Case for Dollars Abroad
After the special window, regular FCNR(B) rates may be closer to 4-4.5%, making overseas dollar products more competitive.
Liquidity and access
Case for FCNR(B) Deposits
FCNR(B) deposits suit NRIs willing to lock funds and seeking repatriability without direct Indian-rupee exposure.
Case for Dollars Abroad
Keeping dollars abroad may be preferable for NRIs who need easier access to funds or want global investment opportunities.
Tax and currency exposure
Case for FCNR(B) Deposits
Interest is generally exempt from Indian income tax for eligible NRIs, although local-country tax rules still apply.
Case for Dollars Abroad
Overseas holdings may better suit some investors concerned about the Indian rupee’s long-term depreciation against the dollar, including some UAE-based NRIs.
Key facts
- Special window deadline
- August 31
- Special FCNR(B) rates
- About 6-7% for some currencies and tenures
- Potential regular FCNR(B) rates
- About 4-4.5% after the special window
- Potential lock-in period
- Three to five years for some special FCNR deposits
- Indian tax treatment
- FCNR interest is generally exempt from Indian income tax for eligible NRIs
- Liquidity consideration
- Dollar holdings abroad may offer greater liquidity and access to global investments
- UAE consideration
- The UAE dirham’s peg to the US dollar may make dollar-denominated investments more attractive to some UAE-based NRIs
Quotes
CA Sneha Kejriwal
Chartered accountant, CFA Level 3 holder and finance content creator
“FCNR(B) deposits can suit NRIs who want to hold foreign currency, earn a fixed return and retain repatriability without direct INR currency exposure.”
businesstoday.in
“FCNR isn’t the best option anymore because the one thing that made it special—the June swap window by RBI—is closing soon on 31st August.”
businesstoday.in
Sources
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