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the fcnr b makeover an attractive investment option

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fcnrWith the global slowdown and recession looming large over US and the Eurozone, coupled with the fact that the Rupee has slumped as low as 53 against the dollar, India has witnessed significant inflows of capital from the NRI community.

It is a good time to convert your US dollars into Rupees and invest in rupee schemes in India. However, having said this, it is an equally good time to invest in foreign currency deposits more popularly known as FCNR (B).

A little more about FCNR (B)



FCNR is a freely repatriable time deposit investment held in foreign currency. It is available in 6 currencies viz. US Dollar, Canadian Dollar, Australian Dollar, Japanese Yen , Sterling Pound and EURO. Since it is held in these currencies, you as an investor are not exposed to a direct exchange rate. Also the interest income earned on these deposits is not taxable in India. The deposits are held for a minimum tenor of 1 year to a maximum tenor of 5 years. The interest is compounded every 180 days. Since you can invest in these deposits only through overseas funds or through NRE funds, these deposits are freely repatriable, which means you can credit them back to your local bank abroad on maturity or whenever you need them without any documentation. One important point to note about them is that since the minimum tenor is 1 year, if you withdraw the money prematurely, before the completion of 1 year, no interest is paid out.

What has changed?

Liberalization of Currencies

Effective September 23rd, you can now open an account in any of the freely convertible currencies along with the ones mentioned above. The others that are included in the list are the Singapore Dollar, Hong Kong Dollar, Swedish Krona, Danish Krona, Swiss Franc and Malaysian Ringgit


Most banks have not started offering this as yet. You will need to check with your bank on availability of this offering.

Increase in Interest Rates

The interest rates are regulated by the Reserve Bank of India and the maximum rate that banks can offer is 100 bps above the 1 year LIBOR rate in that currency as published by FEDAI (Foreign Exchange Dealers Association of India). Effective November 23rd, RBI has increased this ceiling to 125 bps.


Most banks have increased their rates by 25 bps and this means you can now earn 25 bps more on all your investments in FCNR (B) deposits going forward. It will be a good idea to check with your bank on the rates being offered and do a quick comparison with the other banks before making further investments.



Daisy Fernandes

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