HSBC Bank’s IFSC Banking Unit in GIFT City is offering Non-Resident Indians to borrow up to 19 times their own fund on FCNR (B) deposits. It means the bank is offering 19X leverage on FCNR (B) where an investor investing $10,000 in a Foreign Currency Non-Resident- FCNR (B) deposit- can borrow $1,90,000, potentially increasing their return significantly.
Many leading banks such as State Bank of India (SBI), HDFC Bank and Punjab National Bank (PNB) have increased their interest rates on FCNR(B) deposits ever since the government decided to bear the cost of hedging on investments in 3-to-5-year FCNR (B) deposits till September 30, 2026.
Expert illustration shows that an investor investing in a 5-year FCNR(B) fixed deposit (FD) can increase their return by five times by using the 19X leverage strategy. But is leverage in FCNR(B) deposits always a beneficial strategy or are their hidden risks?
Leverage in FCNR(B) deposits
Leveraging in FCNR(B) is a rate arbitrage strategy where an investor opens an FCNR(B) deposit account, borrows against it at a Secured Overnight Financing Rate (SOFR-linked) secured rate, and reinvests that loan into another FCNR(B) deposit.
Tanvi Kanchan, associate director, Anand Rathi Shares & Stock Brokers, says the leveraged FCNR strategy is a dollar-denominated carry trade available to NRIs.
Kanchan further explains the bank marks a lien on this deposit and an overseas branch (or an affiliated foreign bank) advances a loan against it at a lower rate of interest.
“The borrowed funds are then redeposited, magnifying the size of the deposit while the investor's own capital stays the same. The profit comes from the spread between what the FCNR(B) deposit earns and what the loan costs. Because that spread is applied not just to the investor's own money but also to the much larger borrowed amount, the return measured on the investor's own capital is amplified several times over,” says Kanchan.
How 19x leverage in FCNR(B) deposit can magnify returns 5 times
In her illustration of leverage in FCNR(B) deposit, Kanchan shows how returns can increase with higher leverage. Kanchan shows that without leverage, an investor earns $7,000 interest on a $100,000 5-year FNCR(B) FD investment. However, the same investor, when takes 19X leverage where 5% is the loan interest rate, gets $45,000 return on the same $100,000 investment. The return shown in the table is for illustration purpose as an investor gets interest on maturity.
| Particulars | No Leverage | Borrow 3x | Borrow 5x | Borrow 9x | Borrow 19x |
| Your own money | $100,000 | $100,000 | $100,000 | $100,000 | $100,000 |
| Borrowed | $0 | $300,000 | $500,000 | $900,000 | $1,900,000 |
| Total FD deposit | $100,000 | $400,000 | $600,000 | $1,000,000 | $2,000,000 |
| FD earns @ 7% | $7,000 | $28,000 | $42,000 | $70,000 | $140,000 |
| Loan interest @ 5% | $0 | $15,000 | $25,000 | $45,000 | $95,000 |
| Net profit | $7,000 | $13,000 | $17,000 | $25,000 | $45,000 |
| Return on your money | 7% | 13% | 17% | 25% | 45% |
Looking at calculations, one may easily assume that leveraging can be a sure-shot strategy to increase profits. But that may not always be the case. The strategy will work only when FCNR(B) interest rate is higher than the borrowing cost for leveraging. In another example, Kanchan shows when it may not be beneficial if the FCNR(B) deposit rate is lower than the borrowing cost.
| Particulars | Amount |
| Own capital | $10,000 |
| Total FCNR corpus (10x) | $100,000 |
| Interest earned @ 3.5% | $3,500/year |
| Borrowing cost on $90,000 @ 5.5% | $4,950/year |
| Net result | −$1,450/year (loss) |
Borrowing cost can rise during investment
Kanchan also warns if Secured Overnight Financing Rate (SOFR) rises at the point of loan rollover, your funding cost goes up while your deposit yield stays where it was.
“A 50–100 basis point move in SOFR can compress, or entirely eliminate, the margin you are counting on,” says Kanchan.
Investors should keep in mind the fluctuating interest rates of FCNR(B) before investing.
FCNR(B) deposits protect against currency depreciation
FCNR(B) FDs are available in foreign currencies such as US dollar, Canadian dollar, British Pound, Euro, Australian dollar and Japanese Yen. NRIs can invest and withdraw in the same foreign currency. So, even if the value of Indian rupee depreciates, FCNR(B) depositors won’t suffer loss.
Ankit Bagadia, director - business, BankBazaar, told ET Wealth Online FCNR(B) deposits are better suited for NRIs who want to retain exposure to a foreign currency and avoid currency conversion risk.
“Since both the principal and interest remain denominated in the chosen foreign currency throughout the tenure, the depositor is protected from rupee depreciation,” says Bagadia.
Who should invest in FCNR(B) deposits?
Bagadia says FCNR(B) deposits can be particularly relevant for NRIs who expect to use the funds overseas in the future or prefer certainty around the value of their investment in foreign currency terms. They are also attractive during periods of heightened currency volatility when preserving foreign currency value becomes an important consideration, says Bagadia.
