Closing a Foreign Currency Non-Resident [Bank] [FCNR(B)] deposit in India is governed by RBI’s FCNR(B) Scheme and bank-specific policies, with distinct rules for premature closure, closure at maturity, repatriation, and treatment upon return to India for permanent settlement. The key principles are: premature closure is permitted with penalties and, if closed before one year, no interest is payable; at maturity, full principal and interest are freely repatriable; on return to India for permanent settlement, deposits may run to maturity at the contracted rate but are treated as resident deposits for non-rate purposes and must convert at maturity to a Resident Rupee Deposit or RFC at the depositor’s option.
What is FCNR(B)
- FCNR(B) is a term deposit for NRIs/OCIs maintained in designated foreign currencies with Indian banks, with typical maturities from 1 to 5 years as per RBI prescriptions.
- Funds and interest are held and paid in the same foreign currency, with free repatriation permitted under the Scheme.
Closure at Maturity
- On maturity, the bank pays principal plus contracted interest in the deposit currency; proceeds are freely repatriable or can be transferred to eligible NRE/FCNR(B)/overseas accounts as instructed.
- If the depositor has returned to India for permanent settlement, the bank must convert the matured balance into a Resident Rupee Deposit or an RFC account (if eligible) at the depositor’s option, with interest thereafter at rates applicable to the chosen resident/RFC deposit.
Premature Closure
- Banks must permit premature withdrawal on request; they may levy penalties at their discretion, including recovery of swap cost, provided such penalties were disclosed at the time of booking.
- If withdrawn before completing the minimum one-year period, no interest is payable; banks may additionally levy a disclosed penalty to cover exchange/swap costs.
Conversion Between NRI Deposit Types
- Converting FCNR(B) into NRE (or vice versa) before maturity is treated as premature withdrawal and is subject to the same penal provisions.
- Bank policies often specify no interest if closed before 1 year and define the exact penalty grid beyond one year, which can differ by bank and currency.
On Return to India (Resident Status)
- NRIs/OCIs who return to India for permanent settlement may continue existing FCNR(B) deposits till their original maturity at the contracted rate; for all other purposes, such deposits are treated as resident deposits from the date of return.
- Premature withdrawal of such deposits remains subject to Scheme penalties; on maturity, balances must be converted to Resident Rupee Deposit or RFC (Resident Foreign Currency), as chosen by the account holder. RFC accounts allow holders to manage their overseas income and investments in foreign currency without needing to convert them to Indian rupees immediately. To know the benefits of RFC accounts read ‘YOU CAN CONVERT YOUR FCNR DEPOSIT TO RESIDENT FOREIGN CURRENCY (RFC) ACCOUNT’.
Overdue and Renewal
- RBI consolidations provide for handling overdue FCNR(B) deposits; banks typically credit interest for the overdue period only as per disclosed policy or renew from the due date per customer instruction. Always check the bank’s published FCNR(B) overdue and renewal terms.
- Renewal after return to India for permanent settlement is not permitted as FCNR(B); instead, convert on maturity to resident rupee or RFC, as applicable.
Repatriation and Payout
- Principal and interest are fully repatriable in foreign currency on closure for eligible non-residents; banks facilitate outward remittance or credit to designated NRE/FCNR(B)/overseas accounts.
- If status has changed to resident (permanent return), payout at maturity proceeds into Resident Rupee Deposit or RFC per option; repatriation thereafter follows resident/RFC rules.
Bank-Level Variations to Note
- Banks publish FCNR(B) terms including premature closure penalties, currency-wise tenors, and computation methods; for example, major banks state no interest if closed before one year and may waive “penalty” beyond one year while still recovering swap cost if disclosed. Verify the specific bank’s FCNR(B) deposit policy document.
- Operationally, banks may require written instructions, original deposit advice (or e-receipt), KYC, and remittance details for closure and repatriation; timelines and cut-offs are defined in each bank’s operations policy. Refer to the bank’s FCNR(B) product page or deposit policy for exact steps.
Practical Closure Steps
- Confirm your residency status and decide the destination account: overseas account, NRE/FCNR(B), Resident Rupee Deposit, or RFC as applicable.
- Submit closure/withdrawal request with account details; if premature, seek a written disclosure of penalty, swap cost recovery, and net payable interest to avoid surprises.
Key Compliance Pointers
- Penalty components must have been clearly disclosed at booking; undisclosed exchange loss on premature closure should not be passed on to the depositor under RBI guidance.
- On permanent return, continuing the FCNR(B) till maturity is allowed at the contracted rate, but post-maturity holding must shift to resident/RFC; contraventions have drawn regulatory scrutiny in past cases and commentary.
Recent Context on Rates (for awareness)
- RBI temporarily raised FCNR(B) interest rate ceilings linked to overnight ARR to attract foreign currency deposits, with relaxations specified through March 31, 2025; banks varied in passing on higher rates. This does not alter closure rules but affects contract rates on deposits booked during the window.
Quick FAQs
- Is premature closure allowed? Yes, with penalties; no interest if closed before 1 year.
- Can the entire amount be repatriated? Yes, for eligible non-residents; at maturity for returnees, proceeds must move to Resident Rupee/RFC as chosen.
- What happens after returning to India? Deposit can run to maturity at the contracted rate; then convert to Resident Rupee or RFC and earn rates applicable to that deposit type.
References: RBI master circulars/directives and bank policies consolidate the above operational conditions and depositor rights.
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