Archive · 28 Aug 2026
FCNR(B) Deposits Could Create $5.7 Billion Annual Carry Cost
FCNR(B) deposits let non-resident Indians place dollars with Indian banks.
The Reserve Bank of India helped make these deposits attractive by covering part of their cost.
Because banks used leverage, the deposits may be expensive for India’s financial system.
Analysts estimate that the country could face a yearly cost of about $5.7 billion.
They also say the money may be difficult to lend out profitably because domestic lending rates are lower.
Banks could still earn a small spread if they lend the money in India.
However, India’s foreign-currency assets increased by less than the deposits raised.
This difference suggests that India had a balance-of-payments deficit during the period examined.
The annual carry cost of FCNR(B) deposits could reach approximately $5.7 billion, according to Systematix Group.
The RBI covered about 3.5% of costs, enabling banks to offer NRIs dollar deposit rates near 6.5%.
After leverage, the financial system’s effective gross deposit cost is estimated at about 11%, while NRI returns could reach 14%.
RBI foreign-currency assets rose by $38.4 billion, below the $56.8 billion mobilised under the scheme during the same period.
The implied $18.4 billion gap indicates a balance-of-payments deficit over the 10 weeks following the scheme’s launch.
- Who
- The Reserve Bank of India, Indian banks, non-resident Indians, and Systematix Group analysts.
- What
- An analysis estimates that FCNR(B) deposits could impose a substantial annual carry cost and may have contributed to a balance-of-payments gap.
- When
- The analysis covers the 10 weeks after the scheme began, including data from 5 June to 14 August; it also cites FY26 figures.
- Where
- India.
- Why
- The deposits carry high effective costs after RBI support and leverage, while deploying the funds profitably is difficult at prevailing domestic lending rates.
Country-Level Cost Concerns
Bank-Level Lending Economics
Overall profitability
Country-Level Cost Concerns
Systematix Group estimates that the deposits could produce a negative return for the country because their effective cost is about 11%, above fresh domestic lending rates of roughly 8.5%.
Bank-Level Lending Economics
At the bank level, a 50-basis-point lending markup could produce an effective cost of about 6.1% and a lending spread of approximately 2.47% if funds are deployed domestically.
Use of mobilised funds
Country-Level Cost Concerns
The $18.4 billion gap between FCNR(B) mobilisation and the increase in foreign-currency assets suggests that India recorded a balance-of-payments deficit during the 10-week period.
Bank-Level Lending Economics
The analysis does not state that banks were unable to lend the funds; it estimates that banks could still earn a spread broadly comparable with the 2.54% spread on domestic term deposits.
- Estimated annual country carry cost
- Approximately $5.7 billion, equivalent to an estimated 7.9% carry cost.
- FCNR(B) mobilisation
- Approximately $73 billion in the simplified ledger estimate; $56.8 billion was mobilised between 5 June and 14 August.
- RBI cost subvention
- Approximately 3.5%.
- NRI dollar deposit rate
- Around 6.5%.
- Effective gross financial-system cost
- Approximately 11% after accounting for bank leverage.
- Estimated effective NRI return
- Around 14% over three to five years, assuming eight-times leverage.
- Foreign-currency asset increase
- $38.4 billion, from $543.6 billion to $582 billion, between 5 June and 14 August.
- FY26 balance-of-payments deficit
- $23.6 billion, described as the highest in two decades.