Foreign Currency Non-Resident Account FCNR UPSC Notes PDF

FCNR full form is Foreign Currency Non-Resident. FCNR account is a unique type of banking account, specifically designed for Non-Resident Indians (NRIs) and Persons of Indian Origin (PIOs). Unlike a regular savings account, FCNR accounts operate as term deposit accounts, allowing the account holders to maintain their funds in foreign currencies. These accounts essentially function as fixed deposits for foreign currencies.

This topic FCNR UPSC holds significant relevance for candidates preparing for the IAS exam. 

In this article on Foreign Currency Non-Resident Account FCNR UPSC, we shall study in detail about meaning, registration and eligibility of FCNR deposit.

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What is FCNR?

The FCNR account caters to individuals desiring to maintain their deposits in a preferred foreign currency. Currently, FCNR(B) deposits are available in six currencies: US dollar (USD), Pound sterling (GBP), Japanese Yen (JPY), Euro (EURO), Australian Dollar (AUD), and Canadian Dollar (CAD). An advantageous feature of this account is that depositors are relieved from concerns about exchange rate fluctuations. Non-Resident Indians (NRIs) can opt for deposit tenures ranging from 1 year to 5 years, with the interest on FCNR deposits varying based on the chosen currency. Both the interest and principal amounts are freely and fully repatriable, providing flexibility for account holders.

Overview of FCNR

FCNR account allows for joint ownership with residents and/or non-residents. In cases of joint ownership with non-residents, the account holder can choose the operation mandate. However, if held jointly with resident Indians, the joint account holder must be a close relative as per RBI guidelines, and the operation mandate is limited to FORMER OR SURVIVOR.

Loans against the deposits are accessible in India for both the depositor and third parties upon the depositor's request. Banks also offer loans against FCNR(B) deposits in foreign currencies exclusively for depositors. The account can be initiated by transferring funds from abroad or from existing NRE/FCNR accounts.

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How does an FCNR account operate?

An FCNR account operates as a fixed deposit account denominated in foreign currency. The account holder can deposit foreign currencies, such as the US dollar, British pound, euro, etc., into the account. The funds in the account are maintained in the same foreign currency, and the account holder earns interest on the deposited amount. The account has a fixed tenure, typically ranging from 1 to 5 years, and the interest rates are predetermined at the time of opening the account.

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Pros and Cons of FCNR Deposits

Pros

• FCNR deposits allow NRIs to hold their funds in foreign currencies, protecting them from exchange rate fluctuations.
• FCNR deposits often offer higher interest rates compared to domestic fixed deposits, providing an opportunity for higher returns.

Cons

• FCNR deposits are available only in designated foreign currencies, and the choice of currencies may be limited.
• The principal amount and interest earned on FCNR deposits can only be fully repatriated outside India. There may be restrictions on using the funds within the country.

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Difference between FCNR and FCNR B

FCNR and FCNR B, while similar, are not identical. FCNR B was introduced as a replacement for the original FCNR scheme, dubbed FCNR A. Under the FCNR A scheme, the foreign exchange risk was absorbed by the Reserve Bank of India (RBI) and, by extension, the Indian Government.

However, due to the quasi-fiscal costs associated with the FCNR A scheme, it was eventually phased out.

Repatriation of FCNR Accounts

One of the key features of FCNR accounts is that both the principal amount and the interest earned are freely repatriable.

Eligibility for Opening an FCNR Account

The FCNR (B) deposit account offers a nomination facility, much like a regular fixed deposit account. The nominee can be a resident Indian.

The account can be prematurely closed if the account holder wishes to do so. However, if the account holder wants to earn interest on the deposit, the account should remain active for a minimum duration of 1 year.

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