The Reserve Bank of India (RBI) has reopened a special FCNR(B) swap window for banks to attract foreign currency deposits from non-resident Indians (NRIs), reviving a mechanism last used during the 2013 rupee crisis.
The facility, announced on 8 June, allows banks to mobilise fresh Foreign Currency Non-Resident (Bank), or FCNR(B), deposits and swap the proceeds with the RBI. The scheme will remain open for deposits mobilised until 30 September 2026, while banks can access the swap facility until 16 October 2026.
The move comes at a time when policymakers are looking to strengthen foreign currency inflows and support India’s external position amid higher oil prices and a weak rupee.
What has RBI announced?
Under the scheme, authorised dealer banks can mobilise fresh FCNR(B) deposits in any freely convertible currency for a minimum tenor of three years and a maximum tenor of five years. Renewed FCNR(B) deposits are also eligible.
FCNR(B) deposits are fixed deposits denominated in foreign currencies such as the US dollar, pound sterling, euro, Japanese yen, Australian dollar and Canadian dollar. Since the deposits remain in foreign currency throughout the tenure, investors are not exposed to fluctuations in the rupee. Both principal and interest are repaid in the same currency in which the deposit was opened.
While deposits can be raised in multiple currencies, the RBI’s swap facility will be available only in US dollars.
The underlying deposits will carry a one-year lock-in period. Banks may permit premature withdrawal after one year based on their internal policies, but swaps executed with the RBI cannot be cancelled.
Why is the swap facility significant?
The key attraction of the scheme lies in the economics of the swap.
Normally, banks raising dollar deposits face hedging costs when converting and deploying those funds domestically. Those costs often reduce the rates banks can offer to depositors.
Under the new arrangement, the RBI effectively absorbs that currency risk.
“The scheme is expected to be very successful in attracting dollar inflows as the RBI has absorbed the full hedge cost, which is more than 3%. Moreover, the deposits are CRR and SLR exempt. This will make it lucrative for both NRIs as well as banks,” said Gaura Sen Gupta, Chief Economist at IDFC FIRST Bank.
The removal of hedging costs, combined with regulatory relief announced separately by the RBI, significantly improves the economics of FCNR(B) deposits for banks.
“By offering a predetermined swap rate and easing CRR and SLR requirements, it improves the economics of foreign currency deposits, reduces hedging uncertainty, and enables banks to price more competitively,” said Anand Mihir, Partner and Financial Services Consulting Leader at EY India.
How much can deposit rates rise?
The answer will determine the success of the scheme.
FCNR(B) deposit rates have generally remained in the range of 3-4% in recent years, reflecting the cost of hedging foreign currency exposure.
With the RBI absorbing that cost, banks are expected to have room to offer materially higher rates.
Lakshmanan V, Group President and Head of Treasury at Federal Bank, said the swap facility could increase the attractiveness of FCNR(B) deposits relative to overseas alternatives.
“The key mechanics is what return an NRI would get by putting money into FCNR deposits under this scheme compared to their contemporary investments. Because of the swap window, banks are likely to price FCNRs at about 6%, compared to maybe 4% that existed earlier. That 2% differential is significantly remunerative,” he said.
Can the scheme replicate the success of 2013?
That remains the central question.
When the RBI introduced a similar FCNR(B) swap facility in 2013, banks mobilised nearly $34 billion in deposits within a few months, helping stabilise the rupee and bolster foreign exchange reserves.
However, the global interest-rate environment has changed significantly since then.
In 2013, US interest rates were very low, giving Indian banks a substantial advantage in attracting dollar deposits. Today, US Treasury yields are around 4.5%, narrowing the return differential available to NRIs.
That means the eventual response is likely to depend on the rates banks announce over the coming weeks.
Sen Gupta estimates the scheme could attract between $40 billion and $60 billion of inflows by September 2026, reflecting the strong incentives created by the swap structure.
For now, the key variable to watch is the interest rate that banks eventually offer on fresh FCNR(B) deposits.
