RBI’s Third Amendment Directions, 2026: Advancing the Deadline for FCNR(B) and NRE Deposit Rate Relaxation

Introduction

On 25 August 2026, the Reserve Bank of India (“RBI”) issued the Third Amendment Directions under Section 35A of the Banking Regulation Act, 1949. The RBI issued corresponding amendments to the interest rate on deposits frameworks applicable to different categories of banks, including commercial banks, small finance banks, local area banks, regional rural banks and cooperative banks.

The Amendment Directions modify the Reserve Bank of India (Commercial Banks – Interest Rate on Deposits) Directions, 2025, dated 28 November 2025 (updated as on 17 June 2026), by advancing the closing date of a temporary interest rate relaxation on select NRI deposit products from 30 September 2026 to 31 August 2026. The relaxation, first introduced with effect from 17 June 2026, had withdrawn the interest rate ceiling on fresh Foreign Currency Non-Resident (Bank) [“FCNR(B)”] deposits of three-to-five-year tenors and removed the restriction on interest rates payable on fresh Non-Resident External (“NRE”) deposits of three years and above, including renewals upon maturity. The present Amendment Directions do not alter the substantive relaxation itself but curtail, by one month, the period during which banks may mobilise deposits under the dispensation.

Background: The June 2026 Relaxation Framework

Under the relevant provisions of the 2025 Directions, interest rate ceilings ordinarily apply to FCNR(B) deposits of three-to-five-year maturity, based on the applicable Overnight Alternative Reference Rate (“OARR”) or swap rate and the prescribed margin, while NRE deposit rates are subject to the applicable regulatory ceiling.

Against the backdrop of pressures on the rupee and the need to strengthen foreign currency inflows, the RBI temporarily suspended both restrictions with effect from 17 June 2026, with the objective of encouraging overseas Indians to route foreign currency savings into Indian banks and supporting the country’s external balance of payments. The relaxation applied only to fresh deposits and renewals upon maturity; transfers from Non-Resident Ordinary (“NRO”) accounts into NRE accounts were expressly excluded from the exemption.

The Special Swap Facility and Its Response

Concurrently with the rate relaxation, the RBI introduced a special US Dollar-Rupee swap facility on 8 June 2026, permitting banks to swap fresh FCNR(B) deposit inflows, along with eligible External Commercial Borrowings (“ECBs”) and Overseas Foreign Currency Borrowings (“OFCBs”), directly with the central bank. The swap mechanism allowed banks to offer competitive rates on NRI deposits without carrying the associated currency hedging cost, since the RBI absorbed the resulting foreign-currency exposure.

According to RBI data reported by Authorised Dealer Banks as of 13 August 2026, FCNR(B) deposits mobilised under the scheme had crossed USD 52.3 billion, while combined inflows across the FCNR(B), ECB and OFCB channels exceeded USD 56.8 billion.

The Third Amendment Directions, 2026

The present Amendment Directions align the interest rate relaxation with the shortened FCNR(B) swap-facility timeline. The window for mobilising FCNR(B) deposits under the swap facility closed on 31 August 2026, while swaps against such deposits could be availed with the RBI until 11 September 2026. The corresponding swap facility for eligible ECBs and OFCBs continues until 31 December 2026.

Against this backdrop, advancing the end date for the FCNR(B) and NRE deposit rate relaxation from 30 September 2026 to 31 August 2026 brings the rate dispensation into line with the revised mobilisation cut-off for FCNR(B) deposits. Retaining the relaxation beyond the FCNR(B) mobilisation window could otherwise have created a period in which banks could continue to mobilise deposits at relaxed rates after the corresponding window for mobilising FCNR(B) deposits under the RBI’s swap facility had closed.

The amendment is therefore principally a change to the sunset date of the June 2026 relaxation, rather than a change to the substantive terms of the interest rate dispensation itself.

Conclusion and Way Forward

The Third Amendment Directions, 2026 illustrate the RBI’s continued calibration of its NRI deposit relaxation measures in response to actual market mobilisation rather than adherence to a fixed timeline. Having achieved substantial foreign currency inflows, the central bank has chosen to bring the FCNR(B) deposit mobilisation window and the corresponding interest-rate dispensation to an earlier close, aligning the two measures more closely.

Going forward, banks would be well advised to align their NRI deposit mobilisation strategies with the revised 31 August 2026 cut-off, while market participants may watch for further guidance on whether the RBI extends similar relaxations, restores the pre-June 2026 rate ceilings without modification, or introduces a fresh dispensation calibrated to prevailing exchange rate conditions.

Last Updated on 16 September, 2026