FCNR deposits are an attractive option for NRIs


Today, non-resident Indians (NRIs) are facing the most uncertainty ever since the 2008 crisis, especially with the evergreen tech sector also being under pressure. Coupled with the recent fall in global equity and fixed-income markets, it is only prudent that NRIs look for safer investment options.

NRIs are well-positioned to benefit from the interest rate arbitrage as they earn in global currency and can deposit in Indian banks in their earned global currencies without any currency risk.

Indian banks offer the facility of FCNR or FCNR(B), i.e. Foreign Currency Non-Resident (Bank), deposits, exclusively to NRIs. These deposits are available to every NRI but are being utilized primarily only by high net worth individuals (HNIs). As per the latest data from the Reserve Bank of India (RBI), NRIs maintain almost $14 billion of FCNR deposits with Indian banks.

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An NRI receiving his salary in say, dollars, keeps his funds in local banks at low interest rates, which in most cases is sub 1%. Instead, this can be kept with an Indian bank at higher rates. FCNR deposits offer better yields than the local resident bank deposits. Both the principal and the interest earned can be repatriated fully and there is no rupee risk on such deposits as they are made in foreign currencies.

These deposits are offered in all major global currencies, have a minimum tenure of 12 months and a minimum limit of usually $1,000 or equivalent (may vary across banks). The interest earned on them is tax-free in India but resident country taxation applies as per local regulations.

Leading private sector banks such as ICICI Bank, SBI and HDFC Bank offer 3.30% to 4.75% for 1 to 5-year FCNR deposits in USD. IDFC First Bank offers 5.20%- 4.50% for similar deposits. In all cases, the interest is compounded half-yearly.

If you are an NRI who has an NRE (non- resident external) account, then you can coordinate with your bank to create an FCNR deposit. If not, you will need to open an NRE account with any major Indian bank. There are a few ways to do it (see table for details.)

What are the standard documents that you will require? These are PAN or Form 60 (in the absence of PAN), latest passport size photograph, proof of identity, proof of NRI status and proof of address (for either Indian or overseas residence). Additional verification of KYC documents, wherever applicable, has to be done by one of the designated authorities such as any authorized official of overseas branches of scheduled commercial banks registered in India, notary public in the resident country , Indian embassy/consulate general in the country where you reside.

Saurabh Garg has worked in NRI wealth management for more than 10 years. He has previously worked as an investment advisor with ICICI Bank and private banker with DBS Bank, Singapore.

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