Indian banks expect limited participation from US-based Non-Resident Indians in the latest FCNR(B) deposit scheme. Past tax compliance issues and strict reporting requirements have made these investors cautious about parking funds in India. Instead, lenders are focusing on inflows from the Gulf and Singapore to support rupee stability.
Indian banks are observing a slower-than-expected response to the latest Foreign Currency Non-Resident (Bank), or FCNR(B), deposit scheme launched by the Reserve Bank of India. While the central bank introduced this measure to help stabilize the rupee amid ongoing global geopolitical pressure, interest from the United States has remained low. Bankers indicate that many US-based non-residents are hesitant to participate, largely due to memories of administrative difficulties and tax scrutiny following a similar program in 2013.
The Impact of Past Tax Compliance
In 2013, the RBI mobilized approximately $26 billion through FCNR(B) deposits to support the currency during a period of market volatility. However, many investors who participated at the time subsequently faced challenges regarding the disclosure of their global interest income to US tax authorities. Under US tax laws, citizens and residents are required to report all income earned worldwide. Following the implementation of the US Foreign Account Tax Compliance Act (FATCA) in 2014, reporting requirements became much stricter for foreign financial institutions. This regulatory environment has made it significantly more complex and risky for US-based NRIs to invest in offshore products, leading to a cautious approach toward the current scheme.
Strategic Shifts in Deposit Mobilization
With US participation lagging, Indian lenders are realigning their strategies to meet deposit targets. Bankers noted that the majority of expected inflows are likely to originate from the Gulf region and Singapore, a pattern consistent with historical trends where these regions accounted for the vast majority of such deposits. To navigate these hurdles, some banks are increasingly utilizing the Gujarat International Finance Tec-City (GIFT City) framework, which offers a different regulatory landscape for international financial transactions.
Furthermore, the competitive environment for global capital has changed significantly since 2013. Global interest rates are currently higher, which means domestic Indian deposit schemes must compete more aggressively with other international investment options. Because of this, banks are now focusing their efforts on high-net-worth NRIs, specifically targeting those with deposits exceeding $1 million. This approach effectively reduces the focus on smaller, retail-level investments that were more common in past schemes. The success of the current mobilization effort will depend on how effectively these institutions can attract larger capital pools from the Middle East and Southeast Asia, while balancing the compliance needs of a more globalized investor base. Investors may continue to monitor updates regarding the total quantum of inflows as the September 30 deadline approaches.