FCNR Deposits Surge: NRIs Must Master Premature Withdrawal Rules at Major Banks

FCNR Deposits Surge: NRIs Must Master Premature Withdrawal Rules at Major Banks​

FNon-Resident Indians (NRIs) are capitalizing on an attractive window offered by the Reserve Bank of India (RBI), which permits banks to offer highly competitive USD deposit rates. Several lenders currently provide interest exceeding 7 percent on these special US dollar deposits, with the RBI facility remaining open until September 30, 2026.

While these high returns make FCNR(B) a coveted investment avenue for NRIs, it is crucial that investors thoroughly understand the nuanced rules governing premature withdrawal across different financial institutions. Banks vary significantly in terms of lock-in periods, interest payout calculations, and penalties if deposits are closed before their maturity date.

Understanding Bank Variations on FCNR(B) Deposits​

The choice of bank significantly impacts the profitability of an FCNR(B) deposit following early closure. Different lenders impose varying restrictions regarding penalty charges or interest rate adjustments based on when the premature withdrawal occurs.

Here is a detailed breakdown of the specific premature withdrawal rules for $FCNR(B)$ deposits offered by State Bank of India (SBI), HDFC Bank, ICICI Bank, and two other major banks.

SBI FCNR(B) Premature Withdrawal Conditions​

State Bank of India (SBI) has structured its interest rates for these USD-denominated Advantage FCNR(B) deposits based on the deposit size. For deposits up to USD 1 million, the rate is up to 5.75 percent per annum over a five-year tenure. Deposits exceeding USD 1 million earn up to 6 percent.

SBI does not allow premature withdrawal of $FCNR(B) deposits during the first year from the date they are opened. If the deposit is withdrawn after one year but before three years, SBI pays a fixed interest rate of 3.5 percent for that specific period. For withdrawals made between three and five years, the interest paid will be one percentage point lower than the applicable rate for the duration the funds remained with SBI.

Bank of Baroda FCNR(B) Withdrawal Guidelines​

Bank of Baroda has revised its FCNR(B) deposit rates, offering up to 6.5 percent annually on USD deposits across tenures ranging from four to five years. This rate is constant regardless of the deposit amount.

A crucial note for investors is that no interest will be paid if a USD FCNR(B) deposit is withdrawn within its first 12 months. For those who withdraw after completing one year, Bank of Baroda compensates interest at one percentage point lower than the applicable interest rate. The bank calculates this compensation based on whichever rate is lower: the booking date's rate or the withdrawal date's prevailing rate.

HDFC and ICICI Banks’ Premature Withdrawal Rules​

HDFC Bank offers up to 6 percent per annum on $FCNR(B) deposits across tenures ranging from three to five years. The bank policy dictates that no interest is paid if a $FCNR(B) deposit is withdrawn before the completion of one year.

However, HDFC Bank does not levy any premature withdrawal penalty in such cases. After completing one year, the interest earned will be calculated using the rate applicable for the exact period the money stayed with the bank, rather than the original higher contract rate. ICICI Bank provides up to 6 percent annual interest on USD FCNR(B) deposits for tenures between 36 and 60 months.

Kotak Mahindra Bank Penalty Structure​

Kotak Mahindra Bank differentiates its interest rates based on the deposit amount. Deposits of USD 0.5 million or more earn up to 6.15 percent per annum across three to five years. Smaller deposits, those below USD 0.5 million, earn up to 6 percent. The bank allows premature withdrawal after one year.

The interest calculation for early closure is set at the lower of the contracted rate or the rate prevailing on the deposit booking date. Penalties are structured based on the original tenure of the $FCNR(B) deposits. Deposits with an original tenure less than three years incur a 0.25 percent penalty, irrespective of the amount. For those with an original tenure between three and five years, a 1 percent penalty is levied.