HDFC Bank and ICICI Bank have increased interest rates on FCNR-B deposits to 6.25% for three to five-year tenures. This follows the RBI-coordinated government decision to cover hedging costs for these deposits until September 2026. The move aims to attract foreign currency inflows by removing exchange rate risks for Non-Resident Indians.
HDFC Bank and ICICI Bank have updated their interest rate structures for Foreign Currency Non-Resident (Bank) deposits, commonly known as FCNR-B deposits. These accounts allow Non-Resident Indians to hold money in foreign currencies like USD, GBP, or EUR while earning interest, effectively protecting them from fluctuations in the value of the Indian Rupee.
The revised interest rate of 6.25% for tenures between three and five years is a direct result of recent policy support. The Reserve Bank of India announced that the government would bear the hedging costs for these specific long-term deposits. Hedging is essentially an insurance cost that banks usually pay to protect themselves against currency swings. By covering this cost, the government has created more room for banks to offer higher returns to depositors without taking on additional financial risk.
Strategic Impact on Bank Deposits
For HDFC Bank, the 6.25% rate is applicable to deposits booked between June 10, 2026, and September 30, 2026. A one-year lock-in period applies to these accounts, meaning investors cannot withdraw their funds before one year. HDFC Bank also clarified that the interest rate provided is based on the actual date of deposit processing rather than the date the request was submitted via net banking.
ICICI Bank has implemented similar terms, offering the 6.25% rate for deposits of ₹4 lakh and above. Their structure also includes a 12-month lock-in period for tenures exceeding 36 months up to 60 months. Investors should be aware that premature withdrawals within this lock-in period will result in a 1% penalty on the interest earned. For shorter durations of 12 to 36 months, different withdrawal rules apply, where interest is paid based on the duration held, provided the deposit has been active for at least one year.
Investor Context and Next Steps
This move is designed to boost stable foreign currency reserves in the Indian banking system. By removing the exchange rate risk and offering competitive returns, banks are positioning these products as an alternative for NRIs who might otherwise keep their funds in overseas accounts. Investors should note that the primary incentive, the government-covered hedging cost, is only active until September 30, 2026. Therefore, the availability of these specific rates is time-bound.
Future updates for investors will revolve around whether the government chooses to extend the hedging cost subsidy beyond September 2026 and how these inflows impact the overall liquidity position of private banks. Investors holding such deposits should monitor their bank’s specific terms regarding premature withdrawal penalties, as these vary between institutions and can significantly affect net returns if liquidity is needed unexpectedly.