RBI Curtails Duration of Higher Deposit Rate Flexibility for FCNR(B) and NRE Deposits to August 31, 2026
The Reserve Bank of India has issued a fresh set of amendment directions revising the timeline for a previously granted relaxation on interest rate caps for specified foreign currency and Non-Resident External (NRE) deposits. Through the Reserve Bank of India (Commercial Banks – Interest Rate on Deposits) Third Amendment Directions, 2026, vide circular RBI/2026-27/243, DOR.SOG(SPE).REC.211/13.03.00/2026-27 dated August 25, 2026, the earlier relaxation window that was valid up to September 30, 2026 now stands curtailed to August 31, 2026.
These modifications operate within the framework of the Reserve Bank of India (Commercial Banks – Interest Rate on Deposits) Directions, 2025, originally issued on November 28, 2025 and subsequently updated as on June 17, 2026. The changes are focused, technical, and limited to revising the terminal date of the temporary relaxation rather than altering the substantive conditions applicable to deposits.
Background to the Temporary Relaxation
Original Directions of 2025
The Reserve Bank of India (Commercial Banks – Interest Rate on Deposits) Directions, 2025 lay down the regulatory architecture for how commercial banks determine and offer interest rates on various categories of deposits. These Directions, among other things, impose norms on:
- Domestic term deposits
- NRE and NRO deposits
- FCNR(B) deposits across different currencies
- Benchmarking and ceilings where applicable
The Directions were conceived to ensure orderly conduct of deposit mobilization, prevent unhealthy rate competition, and align interest rate offerings with broader monetary and financial stability objectives.
June 17, 2026 Amendment – Relaxation on Interest Rate Caps
A subsequent amendment issued on June 17, 2026 – the Reserve Bank of India (Commercial Banks – Interest Rate on Deposits) Amendment Directions, 2026 – introduced a temporary relaxation aimed at providing greater operational flexibility to commercial banks in mobilizing foreign currency and NRE deposits. This relaxation covered two specific categories:
- FCNR(B) deposits with tenors of three to five years
- The prevailing interest rate ceiling on fresh FCNR(B) deposits in the 3–5 year bucket was temporarily withdrawn.
- NRE deposits with tenors of three years and above
- The restriction on interest rates for such NRE deposits, including renewed deposits on maturity, was temporarily lifted.
This relief was explicitly stated to be operative “with effect from June 17, 2026, for the period until September 30, 2026”. The idea was to give commercial banks short-term leeway to offer more attractive returns within a defined timeframe to shore up foreign currency and NRE inflows, subject to their own risk management and asset-liability frameworks.
Note: The relaxation did not introduce new deposit products or currencies; it merely removed specified interest rate caps for eligible FCNR(B) and NRE deposits within the stated period.
Third Amendment Directions, 2026 – What Has Changed?
Core Change: Shortening of the Relaxation Window
Upon review of macroeconomic, monetary, and external sector conditions, the RBI has now decided to advance the closure of this relaxation period.