Among public sector banks that have announced their FCNR inflow target till September 2026, Punjab National Bank remains the most optimistic
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SUKREE SUKPLANG
The initial excitement around the FCNR (B) deposit scheme appears to be moderating, with inflows likely to remain well below the $50-70 billion market estimates that surfaced after the scheme’s launch. Nearly six weeks into the programme, banks have mobilised only about $3-6 billion, prompting a more cautious outlook across the industry.
Among public sector banks that have announced their FCNR inflow target till September 2026, Punjab National Bank remains the most optimistic. Managing Director and CEO Ashok Chandra said PNB expects FCNR (B) deposits to reach $2.5 billion by September, up from the current $425 million. Union Bank of India is targeting $1.5-2 billion by September-end, while Indian Bank, which has already mobilised $140 million, aims to raise $2 billion and has a visible pipeline of nearly $1 billion. South Indian Bank is targeting $1 billion, and the Central Bank of India has set a goal of $400 million.
Major private-sector lenders, including HDFC Bank, ICICI Bank, Kotak Mahindra Bank, Federal Bank and YES Bank, have not disclosed mobilisation figures, preferring to review progress at the end of the September quarter. Bankers nevertheless expect collections to accelerate as awareness among NRIs improves and marketing efforts intensify.
Margin watch
Private lenders are also mindful of profitability concerns. ICICI Bank has indicated that FCNR (B) deposits could mildly dilute net interest margins because of the higher rates offered on foreign-currency deposits. Federal Bank sees strong potential among NRIs in the Middle East, Singapore and Hong Kong and plans to offer leverage of 8-12 times against deposits.
Most incremental inflows are expected from retail NRIs in Gulf countries, particularly the UAE, along with pockets of demand from Singapore and Hong Kong. Demand from the US and Australia is expected to remain relatively muted because investors there have access to competing fixed-income alternatives.
Experts note that higher returns alone are insufficient to drive NRI investment decisions. Tax treatment in the country of residence, FEMA compliance requirements, currency exposure and broader portfolio considerations all influence participation. While interest earned on FCNR deposits is tax-free in India for eligible NRIs, PIOs and OCIs meeting prescribed conditions, investors must also consider tax liabilities in their home countries. This has resulted in stronger interest from tax-friendly jurisdictions such as the UAE and Hong Kong, while investors in the US and UK remain more cautious.
Yield squeeze
Another factor limiting enthusiasm is the narrowing India-US yield differential. The spread between Indian and US 3-5-year yields has fallen from roughly 650-800 basis points in 2013 to around 200-220 basis points currently, reducing the carry advantage and lowering the attractiveness of FCNR investments.
Meanwhile, the Central Bank of India is stepping up outreach efforts through NRI-focused programmes across Kerala, Maharashtra and Gujarat. The bank remains confident of achieving its target, supported by over 75,500 NRI customers and 159 dedicated NRI desks.
Leverage has emerged as a key competitive feature, with most Indian banks offering between 8 and 12 times leverage, while some overseas institutions reportedly provide up to 19 times. However, Axis Bank MD & CEO Amitabh Chaudhry said customer interest ultimately depends on overall transaction economics and returns rather than headline leverage multiples alone.
Published on July 19, 2026
