India has a unique system for NRIs. It allows them to deposit funds with banks in two distinct accounts: Non-Resident Ordinary (NRO) and Non-Resident External (NRE). The main distinction between these two accounts is that the NRO account is meant for income generated in India (rent, dividends, etc.), while the NRE account is for income earned outside India. Income in NRO accounts is taxed in India and the principal is repatriable only up to $1 million per annum. The NRE account, which is also maintained in Indian rupees, allows 100 per cent repatriation of both interest and principal.
Besides these two accounts, NRIs also have the option of maintaining term deposits in Foreign Currency Non-Resident [FCNR(B)] accounts. In these deposits, which offer varying maturities between 1-5 years, repatriation of both principal and interest is permitted in the currency in which the account is maintained, such as US dollars, euros or pounds sterling. The main difference between NRE and FCNR deposits is that, in the case of NRE accounts, the risk of currency fluctuation is borne by the account holder, whereas in the case of FCNR deposits no such risk accrues because the account is maintained in the designated foreign currency.
NRE accounts were introduced sometime in the 1970s to ease administrative work for the exchequer. FCNR(B), as it is called, replaced the earlier FCNR(A) scheme in 1993. These three NRI account categories contribute a notable amount to the country’s foreign-exchange reserves. As on 31 March 2026, NRE deposits formed the bulk of NRI deposits at $116 billion, while NRO deposits stood at a modest $16 billion and FCNR(B) deposits at around $34 billion. The total deposits in these three categories amounted to $168 billion, virtually the same as in 2024 and around one-fifth higher than 5 years ago.
Whenever there is pressure on foreign-exchange reserves, the RBI often lifts the cap on interest rates in a bid to attract higher foreign-exchange inflows into the country. It is widely expected that the RBI may again raise the ceiling on the maximum rates permitted. However, on NRE accounts, banks are expressly prohibited from offering rates higher than those offered on comparable resident Indian deposits.
Undoubtedly, the system was probably relevant decades ago. It is perhaps time for the regulators to take a fresh look at the existing system of offering dual accounts. Currently, India is perhaps the only country with the unique distinction of having three separate banking products for NRIs. Most countries do not offer dual accounts. Neither the US, nor the UK, Singapore, Canada, Brazil, Australia or the Middle Eastern countries, which host large Indian diaspora populations in places such as Dubai and Qatar, offer such arrangements. While India devised these accounts primarily for administrative purposes, most countries rely on taxpayers themselves to segregate income for tax purposes.
Tax treatment is almost uniform across jurisdictions, as income earned in a country is generally taxed according to that country’s prevailing tax rates, while the treatment of other income depends upon the provisions of Double Taxation Avoidance Agreements (DTAAs). In any case, with India having signed so many DTAA treaties, it may make sense to have a uniform account structure.
Secondly, the profile of NRI deposits shows that nearly 80 per cent of NRI funds are held in NRE accounts. NRO and FCNR deposits account for the remainder. As such, the argument that there would be volatility arising from mass withdrawals does not really hold water. Even now, NRIs have the freedom to withdraw funds from NRE accounts at will. If anything, the RBI should be devising schemes to attract more foreign currency into FCNR(B) deposits, as these are relatively stable. Offering higher interest rates is one sure way of attracting more funds into the system.
Doing away with the multiplicity of accounts and introducing a single account for NRIs would also benefit account holders, who would then need to maintain only one account. Given the sharp rise in information technology and the increasingly sophisticated computation of income by the Income Tax authorities, there is little chance of income earned in India escaping the exchequer’s attention. With improvements being incorporated into the IT system year after year, there should be little scope for disputes regarding the source of income.
With India increasingly following global best practices, introducing a uniform banking product for NRIs is also called for. There is also a need to look at changes in the tax structure for NRIs. In particular, for greatly relaxing the number of days that long-term NRIs can spend in India without being treated as residents in India for tax and exchange-control purposes. That, however, is a debate for a later date.