The UAE has emerged as the primary hub for FCNR-B deposits as Indian banks utilize GIFT City to drive inflows. While contributions from the US and UK remain subdued due to tax hurdles, banks are actively ramping up mobilization through leverage. Total FCNR-B deposits in the banking system climbed to $60.55 billion by July 30, with public sector lenders leading the drive.
The United Arab Emirates (UAE) has overtaken other regions to become the leading source for Foreign Currency Non-Resident Bank (FCNR-B) deposits for Indian banks. This shift is primarily driven by the strategic use of branches in Gujarat International Finance-Tec City (GIFT City), which allows banks to tap into NRI capital more effectively. While inflows from traditional markets like the United States and the United Kingdom have remained muted, the UAE has captured a significant share of these deposits.
The Tax and Leverage Advantage
The dominance of the UAE as a deposit source is largely due to tax efficiency. Unlike the United States, where interest income is often subject to personal income tax, the UAE offers a more favorable tax environment for investment gains. This, combined with India’s tax exemption on FCNR interest, makes these dollar-denominated deposits particularly attractive to NRIs based in the Middle East.
Banks are also using aggressive strategies to attract these funds. Institutions are offering leverage—or credit—against these deposits to entice customers. For instance, some foreign banks like HSBC have reportedly offered leverage of up to 19 times on FCNR-B deposits, while the State Bank of India (SBI) has utilized a leverage ratio of up to 9 times. This approach effectively increases the value of the investment for the depositor, aiding in faster capital mobilization.
Public Sector Banks Lead the Surge
Public sector banks are currently at the forefront of this mobilization effort, outpacing private sector lenders. As of July 30, 2026, the four largest public sector banks—State Bank of India, Bank of Baroda, Canara Bank, and Punjab National Bank—held a combined FCNR-B deposit book of approximately $21 billion. In comparison, the four largest private lenders held about $18.5 billion during the same period.
State Bank of India has been a significant contributor, reporting a deposit book of around $6 billion and setting a target to reach at least $10 billion by the end of September. This overall rise in deposits across the banking sector is substantial, with the total volume nearly doubling to $60.55 billion from $32.56 billion on June 5, 2026. This growth is directly linked to recent Reserve Bank of India measures, which included exemptions from the cash reserve ratio (CRR) and statutory liquidity ratio (SLR) for new FCNR-B deposits, alongside support for hedging costs.
Risks and Future Monitorables
While the current growth in FCNR-B deposits is robust, several factors remain critical for investors to track. The government’s current support for hedging costs on three- and five-year deposits is scheduled to end on September 30, 2026. The withdrawal of this support could impact the cost of mobilization for banks and potentially slow the momentum of new inflows.
Additionally, banks face interest rate risks in managing these dollar-denominated liabilities, and the sustainability of the current leverage-based strategy depends on stable market conditions and regulatory comfort. Investors may continue to monitor how these banks maintain their deposit growth and profitability margins once the current window for hedging support concludes.