FCNR(B) Deposits: Rules for CCFE
A foreign-currency term deposit for NRIs where the bank, not the depositor, carries the exchange risk.
An FCNR(B) deposit is a term deposit an NRI keeps in an Indian bank in foreign currency. The depositor puts in dollars (or another permitted currency) and takes out the same currency at maturity, so the exchange risk sits with the bank, not the customer. That single feature is why FCNR(B) exists alongside NRE.
It is governed by Schedule 2 of the Foreign Exchange Management (Deposit) Regulations, 2016, with interest mechanics set by RBI's interest-rate directions. CCFE questions on it are precise: tenor, currency, conversion rate, and what happens on early withdrawal.
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FCNR(B) at a Glance
- Who can open
- NRIs and PIOs, with authorised dealers and banks RBI has authorised for the scheme.
- Currency
- Any permissible currency, meaning a freely convertible foreign currency the bank offers. Not rupees.
- Form
- Term deposit only. No savings, current or recurring FCNR(B) accounts.
- Tenor
- Not less than one year and not more than five years.
- Repatriability
- Fully repatriable, principal and interest.
- Other conditions
- Credits, debits, joint holding, loans and Power of Attorney operations follow the NRE rules.
How the Money Moves
- 1
Funding
By inward remittance in convertible foreign currency through banking channels, or by transfer from an NRE or another FCNR(B) account. Rupees from an NRE account are converted into the deposit currency, which means the bank is selling foreign currency to the depositor.
- 2
Interest
Calculated on a 360-day year and paid at 180-day intervals, then for the remaining actual days. The rate is capped by RBI at a spread over the overnight alternative reference rate (ARR) or swap rate for that currency, published by FBIL.
- 3
Maturity
Paid out in the deposit currency for repatriation, or converted to rupees (the bank buying the currency back) for credit to an NRE or NRO account, or renewed.
Premature Withdrawal
| Situation | Rule |
|---|---|
| Withdrawn before one year | No interest is paid |
| Withdrawn after one year, before maturity | Bank's board-approved penalty applies, and the bank may recover swap cost |
| Converted from FCNR(B) to NRE, or NRE to FCNR(B) | Treated as premature withdrawal; penalty applies |
| Converted to RFC by an NRI returning to India | No penalty; interest paid even before one year, capped at the RFC savings rate |
| Loan taken against the deposit | Premature withdrawal not available |
Tenor, rate and withdrawal MCQs. No signup.
Rules Borrowed From NRE
RBI's Master Direction applies the NRE conditions to FCNR(B) for everything other than currency and form. In practice that means:
- check_circleJoint holding with other NRIs or PIOs, or with a resident relative on a 'former or survivor' basis, the resident operating only as a Power of Attorney holder during the NRI's lifetime.
- check_circleLoans in India against the deposit to the depositor or a third party, without a ceiling but subject to margin, and not for relending, agriculture or plantation, or real estate business.
- check_circleLoans abroad by the bank's overseas branches or correspondents against the deposit, with remittance from India allowed to settle the loan if needed.
- check_circlePower of Attorney operations limited to local payments and remittance to the depositor himself.
- check_circleInternational credit card dues of NRIs may be settled out of FCNR(B) balances.
How CCFE Tests This
The classic trap is the conversion rate. When rupees are converted into FCNR(B), the bank is selling foreign currency, so the TT selling rate applies; when maturity proceeds go back to rupees, the bank buys, so the TT buying rate applies. Candidates who memorise one rate get the other question wrong. Also watch tenor wording: RBI's directions list maturity bands from 'one year and above' up to 'five years only', so any option offering a savings, current or recurring FCNR(B), or a tenor beyond five years, is wrong.
FAQs
What is the minimum and maximum tenure of an FCNR(B) deposit?expand_more
Not less than one year and not more than five years. FCNR(B) is a term deposit only, and banks cannot accept recurring deposits under the scheme.
Who bears the exchange risk in an FCNR(B) deposit?expand_more
The bank. The deposit is held and repaid in foreign currency, so the depositor gets back the same currency amount plus interest, unlike an NRE deposit where the rupee balance moves with the exchange rate.
Is interest paid if an FCNR(B) deposit is closed before one year?expand_more
No. If the deposit is withdrawn before completing the one-year minimum, no interest is paid. The exception is premature conversion into an RFC account by an NRI who has returned to India.
Is FCNR(B) interest taxable in India?expand_more
Interest on FCNR(B) deposits is exempt from Indian income tax for non-residents, and the exemption extends to individuals who are resident but not ordinarily resident.
Next steps
- NRE vs NRO vs FCNRarrow_forward
- NRE Accountarrow_forward
- Returning NRI Rulesarrow_forward
- RFC Accountarrow_forward
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