- The Reserve Bank of India introduced a temporary swap window for long-term FCNR(B) deposits until September 2026.
- Banks can now offer higher returns on three to five-year foreign currency deposits due to lowered hedging costs.
- While Indian tax exempt, NRIs must report interest income and foreign accounts like FBAR to the IRS.
(INDIA) — The Reserve Bank of India has opened a temporary RBI swap window for banks raising fresh and renewed FCNR(B) deposit rates, a move that could lift returns for non-resident Indians on longer-tenor foreign currency deposits before the facility closes on September 30, 2026.
The policy change, announced on June 8, 2026, applies to new and renewed FCNR(B) deposits with maturities of 3 years to 5 years. Banks can access the swap facility to cover these deposits at lower cost. That matters because forward cover is often the largest hedging expense on foreign-currency liabilities. If that cost falls, banks have room to defend margins or offer higher rates to depositors.
Market expectations have moved quickly, but bank pricing has not. Current U.S. dollar FCNR(B) deposit rates still run about 3.85% to 5% on shorter maturities and roughly 2.95% to 3.65% on 3-year to 5-year deposits. Some market participants expect rates to move toward 6% to 6.5% if banks pass through the full benefit of the swap window. No major bank has announced a revised rate card yet.
The present gap between short and long tenors shows why the RBI action has drawn attention from NRIs. On 1-year to 2-year FCNR(B) deposits, Bank of Baroda is offering up to 5%. SBI and Kotak Mahindra Bank are around 4.40%. Axis Bank is up to 4%. ICICI Bank and HDFC Bank are near 3.85% and 3.95%.
On the longer tenors covered by the RBI facility, rates are lower. SBI and Bank of Baroda are offering up to 3.35% on 3-year to 5-year deposits. Kotak Mahindra Bank is up to 3.4%. ICICI Bank and Axis Bank are up to 3.25%. HDFC Bank is near 3.65%. The central bank’s swap facility targets this part of the curve, not the already higher short-term segment.
The tax treatment remains one of the main reasons FCNR(B) deposits stand apart from NRO fixed deposits. Interest on FCNR(B) deposits is generally exempt from income tax in India while the depositor qualifies as a non-resident under Indian tax rules. By contrast, NRO deposit interest is taxable in India and often attracts TDS up to 30%, plus surcharge and cess, subject to treaty relief where available.
📅 Deadline Alert: The RBI swap window for eligible 3-year to 5-year fresh and renewed FCNR(B) deposits is open until September 30, 2026. Banks do not have to wait until that date to revise rates.
For NRIs who file U.S. taxes, the Indian exemption does not settle the U.S. side. A U.S. tax resident, including many green card holders and many H-1B, L-1, O-1, and TN workers, generally must report worldwide income on a federal return. That rule applies even if India does not tax the interest. IRS Publication 519, U.S. Tax Guide for Aliens, explains the resident alien and nonresident alien rules. IRS Publication 901 covers treaty positions. The IRS international tax portal is at international tax portal.
That distinction matters in tax year 2026, with returns filed in 2027. An NRI on an F-1 or J-1 visa may still be a nonresident alien for U.S. tax purposes because of the substantial presence exemption period. Many H-1B and L-1 workers are not. If the account is reportable, the U.S. filing duties can extend beyond Form 1040 or 1040-NR. Foreign financial accounts can trigger FBAR, filed as FinCEN Form 114, once aggregate balances exceed $10,000 at any point in the year. Form 8938 can also apply under FATCA rules.
| U.S. reporting item | Threshold or deadline | Why it matters for FCNR(B) |
|---|---|---|
| FBAR (FinCEN Form 114) | $10,000 aggregate foreign account value; due April 15, automatic extension to October 15 | FCNR(B) accounts at Indian banks count toward the aggregate threshold |
| Form 8938 | Common starting threshold for single U.S. residents: $50,000 on the last day or $75,000 at any time | Applies in addition to FBAR, not instead of it |
| Income reporting | Tax year 2026, filed in 2027 | U.S. tax residents generally report worldwide interest income, even if exempt in India |
IRS forms and publications are available at forms and publications, including 519. NRIs who also hold investor visas or are preparing immigrant filings should keep clean tax records. U.S. immigration filings can require tax transcripts, income evidence, or account history in other contexts, including affidavit of support cases.
⚠️ Warning: Do not assume an Indian tax exemption means the income is exempt in the United States. U.S. tax residency rules and foreign account reporting rules are separate tests.
The next step is straightforward. Watch bank notices for revised FCNR(B) deposit rates tied to the swap facility. Compare current 3-year to 5-year offers against shorter maturities, because the RBI swap window only covers the longer band. Then check the cross-border tax treatment before placing large deposits. If the accounts push total foreign balances above $10,000, prepare for FBAR. If U.S. residency changed this year, review Publication 519 and treaty guidance before filing tax year 2026 returns in 2027.
Current as of June 10, 2026.
⚠️ Disclaimer: This article is for informational purposes only and does not constitute tax, legal, or financial advice. Tax situations vary based on individual circumstances. Consult a qualified tax professional or CPA for guidance specific to your situation.
