5 min learnMumbaiUp to date: Aug 14, 2026 09:05 PM IST
The Reserve Financial institution of India (RBI) on Friday stated that it has determined to shut its particular foreign exchange swap facility for contemporary International Forex Non-Resident (Financial institution), or FCNR(B) deposits, prematurely on August 31, following an “encouraging response” that has introduced in $52.3 billion by means of this route.
The swaps towards FCNR(B) deposits mobilised underneath the ability, nonetheless, could be undertaken with the RBI until September 11, the central financial institution stated. The schemes for Exterior Industrial Borrowings (ECBs) and Abroad International Forex Borrowings (OFCBs) will proceed to stay open till December 31, 2026.
The RBI had launched the particular US dollar-rupee foreign exchange swap facility on June 8, permitting banks to mobilise contemporary three-to-five-year FCNR(B) deposits and swap these deposits with the central financial institution at a concessional charge. The power successfully coated all the hedging value for banks.
The newest information reported by authorised supplier banks present that the three elements of the particular foreign exchange facility have attracted a complete of $56.846 billion in overseas foreign money inflows until August 13. FCNR(B) deposits accounted for the overwhelming majority at $52.3 billion, adopted by OFCBs at $2.805 billion and ECBs at $1.741 billion.
The size of FCNR(B) mobilisation is considerably larger than the quantity raised within the preliminary weeks of the scheme. At that stage, bankers anticipated the inflows to speed up in August and September.
Non-resident Indians and individuals of Indian origin can open FCNR(B) deposits. It’s absolutely repatriable and exempt from tax in India.
Liquidity, stability measure
The RBI’s particular facility was a part of a broader bundle introduced in June to encourage overseas capital inflows, strengthen the rupee and enhance overseas change reserves. The central financial institution had additionally eased norms for state-owned enterprises to borrow abroad and offered a concessional swap facility to encourage ECBs by public sector companies.
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“In contrast to 2013, the rupee has not appreciated considerably as a consequence of world uncertainties, geopolitical dangers, and weaker capital circulation dynamics. Moreover, RBI’s massive ahead foreign exchange obligations could constrain any seen rise in reserves,” CareEdge Rankings stated in a report. General, the scheme ought to be seen primarily as a liquidity and stability measure quite than a driver of sharp foreign money appreciation or reserve accumulation, it stated.
On the core of the FCNR(B) facility was the RBI’s determination to soak up the hedging value for banks. By permitting banks to swap the overseas foreign money raised by means of eligible deposits with the RBI at concessional phrases, the central financial institution made FCNR(B) deposits a extra engaging supply of abroad funding.
The transfer was vital as a result of the price of hedging overseas foreign money deposits had made the mobilisation of such funds much less engaging for Indian banks. The RBI’s intervention successfully lowered that value and enabled banks to supply extra aggressive charges to non-resident depositors.
The RBI had additionally briefly withdrawn the rate of interest ceiling on contemporary FCNR(B) deposits of three-to-five-year tenors till September 30. Banks subsequently started providing larger charges to draw abroad funds. A number of banks have been providing charges of round 7% on FCNR(B) deposits.
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The particular swap scheme revived a software final utilized by the RBI in 2013, when the central financial institution had sought to draw overseas foreign money inflows amid stress on the rupee. This time, the ability was launched towards a backdrop of stress on the foreign money and the necessity to appeal to overseas capital.
RBI cuts FCNR(B) window; ECB, OFCB schemes keep open
The RBI’s determination to carry ahead the cut-off for contemporary FCNR(B) deposits, whereas protecting the ECB and OFCB schemes open till December 31, displays the robust response to the deposit element.
Beneath the ability, the RBI gives a plain purchase/promote overseas change swap protecting the principal quantity of eligible FCNR(B) deposits, and never the curiosity element. Banks can undertake swaps of lower than three years offered they’ve mobilised eligible FCNR(B) deposits with an unique maturity of at the very least three years.
For ECBs, the ability is out there for borrowings with a median maturity of three years and above, with the swap tenor linked to the reimbursement schedule or the ECB maturity, topic to a most of 5 years.
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With the FCNR(B) mobilisation window now set to shut on August 31, banks have somewhat over two weeks to lift contemporary deposits underneath the particular facility.
Banks are passing on the above advantages to NRIs by providing larger FCNR deposit charges and facilitating leveraged buildings. A leveraged FCNR deposit is an funding technique utilized by abroad traders to boost returns from a typical FCNR(B) fastened deposit.
The investor contributes a portion of the funding from their very own funds and borrows further overseas foreign money towards the deposit by means of the financial institution or an affiliated abroad lender, usually at a hard and fast coupon. The borrowed funds are additionally invested in FCNR deposits, making a considerably bigger deposit base. The technique relies on rate of interest arbitrage, whereby the investor earns the next rate of interest on the FCNR deposit than the price of borrowing. The distinction between the deposit yield and the borrowing value generates further returns, CareEdge stated.
