Non Resident Indian (NRIs) who would like to open an account in India have several options to choose from such as NRE Fixed Deposit Account, Non-Resident Ordinary (NRO) Savings Account and Foreign Currency Non Resident (FCNR) Fixed Deposit Account among others.
There are several factors which NRIs should consider before choosing to open an account in India such as the following:
Can a relative or family member of the NRI in India operate the account with a mandate card provided by the bank?
Should the funds in the account be deposited from sources in abroad only or from India as well?
What are the currencies in which the account can be opened and the associated risk of currency rates?
Will the principal and the interest in the account come under the purview of tax laws in the country.
Can the funds be converted back to the foreign currency?
According to experts, FCNR play a significant role in terms of attracting remittances from NRIs. It is, in some ways, a unique financial instrument in that unlike NRE and NRO accounts, FCNR accounts can be opened as term deposit accounts only. FCNR accounts can be opened from overseas by submitting copies of passport and visa of the account proposer in addition to bank accounts held overseas, proof of foreign residence and income documents among others.
Interest rates offered for FCNR accounts may vary depending upon the type of currency and the bank. For instance, FCNR deposit (one year) in USD may be around 2.5 to 3% but could be pegged at 5% for the Australian dollar.
Foreign Currency Non Resident (FCNR) Fixed Deposit Account
Some of the advantages of the Foreign Currency Non Resident (FCNR) Fixed Deposit Account are as follows:
FCNR accounts are protected against forex rate risks (changes in the value of rupee vis-a-vis the currency in which the account is denominated) as they are maintained in a foreign currency. In other words, the principal and the interest are transferred in the currency in which the account is maintained sans any loss of exchange.
Interest earned on FCNR deposits in India is exempt from Income tax.
FCNR accounts can have two or more NRIs joint account holders. However, joint account with another person resident in India is not permitted.
FCNR accounts are denominated in several major currencies such as Pound Sterling, US Dollar, Yen and Euro.
In FCNR accounts, both principal and interest are freely repatriable. In other words, the interest earned and the deposit amount on the deposits are repatriable to the depositor's country of residence sans restrictions.
FCNR accounts are offered for not less than 1 year and not more than 3 years.
All authorized banks which offer FCNR accounts set the interest rates within the ceiling as announced by the Reserve Bank of India. Interest rates on FCNR term deposit accounts should, therefore, be set by the board of directors of a particular bank, under the broad mandate of RBI regulations.
Interest rates on FCNR term deposits are payable after the end of first year. Interest is compounded on a half-yearly basis subsequently.
Rupee loans against funds held in the FCNR accounts can be provided to account holder for any investment in India. Foreign currency loans outside India permitted to the account holder, can be repaid from the maturity proceeds. Some banks may also provide loans to firms or companies against the collateral of FCNR accounts.
FCNR and Current Account Deficit
RBI, in a bid to attract more foreign exchange into the country, may announce a 'bonanza', as it were, for NRIs by offering high interest rates on FCNR deposits. According to experts, increased inward remittances from NRIs, lead to more forex reserves, which in turn, reduce the current account deficit (CAD) of the country. The current account deficit is one of the main reasons of depreciation of the rupee. According to experts, any tapering of quantitative easing (QE) by the US Federal Reserve Bank, raises fears of less capital investment in India by foreign institutional investors (FIIs).
Attracting NRI deposits through FCNR deposits
While raising interest rates under the FCNR deposit scheme may prove beneficial for NRIs, RBI have certain protective measures for banks in India such as facility of swapping the US dollar funds at a fixed rate (usually 3.50%). The swap facility and the high interest rates offered on FCNR deposits can cease with prior notice since they reportedly expose the RBI to incur losses running to thousands of crores. The RBI, therefore, may discontinue the said facility and reduce interest rates if it attracts the desired forex reserves into the country.
Some of the disadvantages of the Foreign Currency Non Resident (FCNR) Fixed Deposit Account are as follows:
If FCNR deposits are held with a weak bank, it may be unable to pay back upon maturity. Credit guarantee in India covers accounts in India to around Rs. 100,000 or 1600 USD, which is considered low. Many experts, therefore, believe that deposit insurance is almost non-existent in India, which could be a concern for FCNR deposit account holders.
In the event of a financial meltdown, banks may not be able to repatriate funds. The Greek crisis is a case in point. In some cases, Greek citizens, were reportedly, restricted from withdrawing over 40 euros from their accounts.
If FCNR deposit is withdrawn in less than one year, no interest is payable.
Foreign currency loans in India against FCNR accounts can be taken by account holders only.
FCNR deposits are offered for term deposits only and not for current, savings and recurring accounts.
FCNR account can be transferred to other NRE accounts before maturity. However, penalties will apply for premature withdrawals. Also, swapping charges are fixed by the bank in which the FNCR account is held.
FCNR accounts can be renewed within 14 days after maturity, failing which, the bank will fix interest rate on renewal. If renewed accounts are withdrawn before a fixed period, banks can take back the interest paid.
While the interest earned on FCNR deposits is tax-free, it may be taxable in the country of residence of NRIs. Also, Non Resident Indians, should consult tax experts to understand the implications of investing in India.
While RBI, under the Foreign Exchange Management Act, formulates rules of investment for NRIs in India, the Government of India, under the Indian Income Tax Act frames the tax rules, which are subject to change.
Foreign Exchange Markets could be Shaky Due to FCNR Maturity
With close to $25- $27 billion in FCNR deposits set to mature by November 2016, market analysts are anticipating a volatile Rupee by the end of the year. The Foreign Currency Non-Resident (FCNR) deposits, which are a type of fixed deposit offered to non-Resident Indians, account for around 1% of all deposits in India.
The outflow of such a large amount of cash would negatively affect the performance of the Rupee, especially if exports continue to decline.
Exports have seen a decline since December 2014, with exports in April 2016 $20 billion lower compared to the previous year.
When the FCNR deposits expire, it would lead to Dollar outflow from the country, which might require the RBI to intervene to keep markets stable.
Measures the RBI could take at such a time include accumulating Dollar reserves up till November, and allow the Dollar reserves to dip during this period by flooding the market with the currency. Another option could be issuing Sovereign Dollar bonds through government entities or a lowering of the CRR ratio during the deposit maturity period.
Display of any trademarks, tradenames, logos and other subject matters of intellectual property belong to their respective intellectual property owners. Display of such IP along with the related product information does not imply BankBazaar's partnership with the owner of the Intellectual Property or issuer/manufacturer of such products.
I have chosen my fixed deposit scheme from State bank of India because I'm maintaining my salary account with them and they provided rate of interest is fine for me. I have invested the money of Rs. 2.75 lakhs. There is a locking period of 45 days. They are giving interest rate of 4.5%. Overall, I'm satisfied with their services.
I have been investing the money of Rs. 3 lakhs for the fixed deposit. I have selected Kotak mahindra bank for the FD because their net banking facility is very different when i compared to other. I can access everything regarding the account hence its easy to handle the transactions. I'm not sure about the interest rates. 7 months before, i have invested the money.
Its because of the competitive interest rates, i have selected the Fixed deposit in Kotak Mahindra bank. I have invested the fixed deposit 1.5 years ago and there is a lockin period of 5 years. They have invested the amount of Rs. 7.5 % and the employees are helpful in the branch.
I have a Fixed deposit in Axis bank. I have invested the money of Rs. 10000 for two FDs. There is a lockin duration of 1 year. They are giving a interest rate of 7%. Through net banking, i have activated this Fixed deposit. There is no tax benefits available. Axis bank service has been good. Overall, I'm happy about their services.
Since last 15 years, i have a account with Oriental bank of commerce thats the reason i have invested the money in fixed deposit with the same bank. I have invested the amount of Rs. 11 lakhs. They are giving the interest rate of 6.5%. There is no locking period but i have chosen the duration of 1.5 years. There is no additional charges deducted for this fixed deposit.
Interest rate is very low in Indian post office Fixed deposit scheme because they are providing only 8.5%. I have chosen this office because of the child benefits. I have invested the money of Rs. 1.5 years. Its 3 years lock in period. Overall, I'm satisfied with the service provided by post office employees.
I have invested the money in SBI for a fixed deposit and based on my wife recommendation i have chosen it. They are providing the interest rate of 7.25%. They have option to select the lock in period in that i have chosen 5 years. We had visited their branch and the response was good.
Its easy accessible and to redeem so that i have invested the money in Fixed Deposit with HDFC BANK. I have invested the money of Rs. 2.5 lakhs and they have provided me a interest rate of 7.5%. There is no locking period. I didn't got any additional charges till now.
I have paid the money of Rs. 4.5 lakhs as a fixed deposit in the Indian post office. For the safety purpose, i have chosen the post office account. They are offering me a interest rate of 7.9%. There is a lockin period of 5 years. If i withdraw the money in 1 year, they will reduce the interest rate of 2% and after 3 years, its 1%.
Interest rates are less in Central Bank of India so I had taken a fixed deposit. I have invested the money of Rs. 1 lakh in my wife's name. Branch is near from my place so I have chosen this bank. Yearly once, I get the money of Rs. 6,765 for the interest. There is a locking period of 1 year.
I am doing Fixed Deposit with ICICI BANK and its been around 5years. They haven't been paying good interest and its more or less same like other banks as I used to hold my salary account with ICICI, I have decided to be with one bank. There is no locking period and its flexible. They do give good support and the app is user friendly. Even deposit account can be opened through i-mobile or net banking itself.
I had a Fixed Deposit in State Bank of India, I have completed the tenure before 3months ago. I have no issues with the customer service. They are given me 7% interest rate for 2years. There is no profit and processing fee. I got an online access, where I can check the interest rate anytime on the YONO app or else SBI online.
I have invested some money through FD. My salary account is in SBI so i have a zero ATM charges and the limit is not actually set by SBI. They do have short term FDs which is pretty good. I have invested the money of Rs. 60000 and the interest rate is 10.01% for the tenure period of 16 months. There is no lockin period. There is no hassle to getting the money back.
I have invested the money in Dena bank through Fixed deposit and the growth is not that much good. They are not taking any hidden charges. Only because of the Government undertaken bank, i have selected them. They are providing a interest rate of 6% per annum. I have invested the money of Rs. 2 lakhs. There is a lockin period of 1 year.
I have opt for fixed deposit for the tax saving purpose because I have chosen five years tenure with AXIS Bank, still its going on. Only once I Invested my money it has the locking period of five years. I have option to check my transactions through mobile app. But I have concern about the interest rate is very lesser for this FD.
I had fixed deposit with SBI then I withdrawn the amount, I done Rs. 3 lakhs of investment on my daughter name then I taken the liquidity to purchase the land, at the time I struggled a lot to take that money because the process was difficult to withdrawn the money after seven months of tenure.
I had a Fixed Deposit with Union Bank of India and its closed 18 to 19 months due to personal reasons. I am doing investment but my experience is not good with FD account. In my home town, there is no other banks so just decided to go with this bank. The returns are good.
I have one FD with HDFC, I deposited Rs. 1 lakh, I was opt for 45 days of tenure. Finally I got 6.25% of interest for 45 days. It won't cover the tax, if we need tax benefits we should go for five years term. I can track the details through netbanking, on the maturity date the amount credits automatically in the account. Even the notification can customized.
HSBC staff wrongly pre closed my fixed deposit .. and calculated the interest rates wrongly and when asked them for clarification never got back .. even after following up with them repeatedly for more than 3 months.. would highly recommend not using their services.
Was this review helpful?
A V kumar
Reviewed on Aug 24, 2019
I do have a Fixed deposit account with SBI and it was carried out by Mom and even I have account for my daughter. Its still running and they have Google application separately to access online. The returns are good. I am doing monthly investment and it was opened quite a long may be 4 years.