Hidden risks of FCNR (B) FD investment, leverage

Foreign Currency Non-Resident (Bank) or FNCR (B) deposits have drawn considerable US dollar investments following the government's decision to absorb the hedging expenses for 3-5-year deposits. Leading banks, including HSBC, have increased FCNR (B) fixed deposit interest rates for 3-5-year tenures, even providing up to 19 times leverage on these deposits.

As a result, there has been a significant surge in foreign investments in FCNR (B) deposits. According to the Reserve Bank of India's update in early August 2026, the value of FCNR (B) deposits stood at USD 36,725 million, representing an impressive 111% rise from the previous figure of USD 17,406 million in July 2026. Although FCNR (B) deposits appear to present an enticing opportunity with the government covering hedging costs and banks offering substantial leverage, experts emphasize the hidden risks that every Non-Resident Indian (NRI) or Overseas Citizens of India (OCI) investor should consider before investing.

Adhil Shetty, CEO of Bankbazaar, highlights that FCNR (B) deposits are suitable for NRIs holding savings in an eligible foreign currency. However, investors must evaluate factors beyond the interest rates. For instance, currency risk is an often overlooked aspect as FCNR (B) deposits only safeguard investors from rupee depreciation.

If funds need to be converted back to the original currency for property, family expenses, or repatriation, adverse forex movements at maturity can erase a sizable portion of the interest earned. Additionally, liquidity and premature withdrawal risks are considerable, with premature withdrawals before one year yielding no interest, and banks potentially imposing their own terms afterward.