Finance Minister Pitches Banks to Revive FCNR Deposits Amid Declining Inflows

Finance Minister Pitches Banks to Revive FCNR Deposits Amid Declining Inflows​

Finance Minister Nirmala Sitharaman is scheduled to chair a crucial meeting with public sector banks (PSBs) on July 13th. The focus of this high-level gathering is the mobilization of foreign currency deposits, specifically Foreign Currency Non-Resident (Bank) deposits or FCNR(B).

The minister will also address strategies for encouraging External Commercial Borrowings (ECBs), particularly among state-owned enterprises and central public sector enterprises (CPSEs). This initiative comes as efforts to attract foreign currency remain under scrutiny.

Addressing the Steep Decline in Foreign Currency Deposits​

The push to boost FCNR(B) deposits is necessitated by a sharp weakening trend in inflows. Net FCNR(B) deposit flows have significantly declined, dropping from $7.1 billion in FY25 to just $946 million in FY26.

To reverse this downturn and attract Non-Resident Indians (NRIs), Overseas Citizens of India (OCIs), and Persons of Indian Origin (PIOs), the Reserve Bank of India (RBI) has implemented specific measures. The RBI withdrew the interest rate ceiling on fresh FCNR(B) deposits for those with a three to five-year maturity.

Incentives to Drive Corporate Borrowing in Foreign Markets​

The government is actively providing incentives to encourage PSUs and corporations to raise ECBs abroad. A concessional foreign exchange swap facility has been announced by the RBI until September 30, 2026.

This swap facility significantly benefits banks and helps reduce the cost of hedging foreign currency exposure. State-owned enterprises typically generate around USD 10–12 billion annually through ECBs, making this incentive highly relevant to their borrowing plans.

Reversing the Downturn in Global Borrowing Flows​

The concessional forex swap facility is designed to accelerate ECB issuances by PSUs in overseas markets. SBI Research noted that this policy intervention holds the potential to improve access to competitive net pricing for these entities.

Currently, total ECB and Foreign Currency Convertible Bond (FCCB) flows are on a decline trajectory. These flows fell by approximately 30 per cent in FY26, reaching $42.9 billion from $61.2 billion recorded in FY25.

Sources indicated that the Finance Minister is expected to strongly exhort PSUs and banks during the meeting to increase credit flow towards productive sectors of the Indian economy. This targeted push aims to ensure national development projects benefit from improved foreign funding conditions.