FCNR Account
An FCNR (Foreign Currency Non-Resident) account is a fixed deposit account in India held by NRIs in a foreign currency — such as USD, GBP, EUR, or JPY — protecting the depositor from rupee depreciation risk while earning Indian deposit rates on the foreign currency balance.
The FCNR account was created specifically to address the exchange rate risk that reduced the appeal of rupee-denominated NRE deposits. Because FCNR deposits were maintained in the NRI's foreign currency of choice, there was no currency conversion at the time of deposit, and the maturity proceeds — both principal and interest — were returned in the same foreign currency. This eliminated the risk that rupee depreciation would erode returns when converted back.
FCNR deposits were available in six major currencies: US Dollar (USD), Euro (EUR), British Pound (GBP), Australian Dollar (AUD), Canadian Dollar (CAD), and Japanese Yen (JPY), though the USD dominated by volume. Interest rates on FCNR deposits were linked to LIBOR (London Inter-Bank Offered Rate, later transitioning to SOFR benchmarks) plus a spread set by RBI from time to time. These rates were naturally lower than NRE rupee deposit rates but were measured in foreign currency terms, making the comparison more meaningful.
FCNR accounts were available only as fixed deposits, not savings accounts, with tenures ranging from one year to five years. Both principal and interest were fully repatriable in the deposit currency without any restrictions, and interest was exempt from Indian income tax — the same tax treatment as NRE accounts. This combination of currency protection, tax exemption, and full repatriability made FCNR particularly attractive for NRIs in countries with low domestic deposit rates.
Banks occasionally used FCNR deposits as a tool to attract foreign exchange during balance-of-payment stress periods. In 2013, during the rupee crisis, the RBI offered a special FCNR deposit scheme with attractive swap-subsidised rates that attracted approximately USD 34 billion in inflows, stabilising the currency. The scheme was unwound over 2016, reflecting how FCNR deposits were sometimes a macro-policy instrument as well as a retail banking product.
For NRIs evaluating NRE versus FCNR, the decision typically came down to their view on the rupee and their need to ultimately repatriate in foreign currency. An NRI planning to retire in India might prefer NRE rupee deposits since they would spend in rupees. An NRI planning to return abroad or purchase foreign currency assets might prefer FCNR to lock in the exchange rate at deposit time.