Are FCNR Deposits Insured?

When it comes to FCNR (Foreign Currency Non-Resident) deposits, many Non-Resident Indians (NRIs) wonder whether their investments are protected in case of a bank failure. To answer that question clearly: Yes, FCNR deposits are insured, but there are some important points to understand regarding the extent and conditions of this insurance.

Let’s take a closer look at how FCNR deposits are insured and what this means for your investment.

1. Deposit Insurance in India

FCNR deposits are essentially fixed deposits held in foreign currencies (such as USD, GBP, EUR, etc.), and like regular fixed deposits in India, they are covered under India’s Deposit Insurance and Credit Guarantee Corporation (DICGC).

The DICGC is a subsidiary of the Reserve Bank of India (RBI) and provides insurance coverage to all eligible bank deposits in India, including those held under FCNR accounts. The insurance coverage protects the depositors against the risk of a bank failure.

2. What is Covered by DICGC Insurance?

The DICGC covers the principal amount and interest of bank deposits, including FCNR deposits, up to a maximum limit of ₹5 lakh per depositor per bank. This means that if your bank fails, and you have an FCNR account with that bank, you are eligible for insurance coverage up to ₹5 lakh for the combined principal and interest.

Example: If you hold an FCNR deposit in USD and have a balance of USD 50,000 (or its equivalent in INR), the DICGC insurance will only cover the equivalent of ₹5 lakh in INR, not the entire amount.

3. Key Features of DICGC Deposit Insurance for FCNR Accounts:

Coverage Limit: ₹5 lakh for all types of deposits (including FCNR deposits) held with a single bank.
Currency of Deposit: The insurance coverage is in INR terms. If the deposit is in a foreign currency, its equivalent value in INR will be calculated at the prevailing exchange rate.
Multiple Accounts: If you hold multiple deposits with the same bank, the total coverage across all accounts (savings, current, fixed, or FCNR) is capped at ₹5 lakh.
Interest Coverage: The insurance also covers accrued interest along with the principal amount, as long as the total amount does not exceed ₹5 lakh.

4. What is Not Covered?

More than ₹5 lakh: If your FCNR account balance exceeds ₹5 lakh, the amount above ₹5 lakh is not covered by DICGC insurance in case the bank defaults.
Foreign Banks: If your FCNR account is held in a branch of a foreign bank in India, it may not be eligible for coverage under DICGC, as DICGC insures deposits only in Indian banks.
Foreign Currency Volatility: The insurance does not account for any foreign exchange rate fluctuations. If your FCNR account is denominated in a foreign currency, and its value declines relative to INR, the DICGC coverage will still be limited to ₹5 lakh in INR terms, calculated at the current exchange rate.

5. How the Insurance Works in Case of Bank Failure

If the bank where you have an FCNR deposit faces liquidation or failure, the DICGC will step in and offer compensation up to the ₹5 lakh limit. However, it’s important to understand that:

The process may take time, as the liquidation and claims settlement process can be lengthy.
The payout will be in INR, and the amount will be calculated based on the exchange rate at the time of settlement.

Additionally, the DICGC insurance does not cover losses due to market fluctuations or other risks associated with the performance of foreign currency deposits.

6. Are All FCNR Deposits Covered?

While most commercial banks in India provide DICGC coverage for FCNR deposits, it’s essential to verify the eligibility of your bank for this insurance. The coverage applies to all scheduled commercial banks in India, which include:

Public Sector Banks: Such as State Bank of India (SBI), Punjab National Bank (PNB), etc.
Private Sector Banks: Including HDFC Bank, ICICI Bank, Axis Bank, etc.
Foreign Banks: Some foreign banks in India are also covered, but certain foreign banks that do not participate in the DICGC scheme may not offer this insurance.

It’s important to confirm with your bank whether they are part of the DICGC insurance scheme.

7. How to Ensure the Safety of Your FCNR Deposit

If you are concerned about the safety of your FCNR deposit, here are a few tips to ensure that your investment is protected:

Choose a reliable bank: Always invest in well-established and reputed banks that are covered under the DICGC scheme.
Diversify your deposits: If you hold large sums in an FCNR deposit, consider spreading your funds across multiple banks to ensure that each deposit is eligible for ₹5 lakh coverage under DICGC.
Stay informed about your bank’s status: Regularly monitor the health of the bank where your deposit is held. Keep an eye on news related to the bank’s financial condition.
Check if your bank is insured by DICGC: You can ask your bank directly if they are a member of the DICGC scheme. This ensures that your FCNR deposit is protected under the deposit insurance scheme.

8. Conclusion

FCNR deposits offer NRIs an opportunity to invest in foreign currencies while earning attractive returns. While these deposits are insured under the Deposit Insurance and Credit Guarantee Corporation (DICGC), the coverage is subject to certain conditions. The insurance protects you against the risk of bank failure, but it is limited to ₹5 lakh per depositor per bank. For deposits exceeding this limit, you won’t receive insurance coverage beyond the ₹5 lakh threshold.

It’s always prudent to stay informed and take steps to ensure the safety of your funds by choosing reliable banks and diversifying your investments.

By taking proper precautions, you can ensure that your FCNR deposits remain safe and your investment returns are protected.

Login

AMFI Registered Mutual Fund Distributors