5 min readMumbaiUpdated: Aug 14, 2026 09:05 PM IST
The Reserve Bank of India (RBI) on Friday said that it has decided to close its special forex swap facility for fresh Foreign Currency Non-Resident (Bank), or FCNR(B) deposits, prematurely on August 31, following an “encouraging response” that has brought in $52.3 billion through this route.
The swaps against FCNR(B) deposits mobilised under the facility, however, can be undertaken with the RBI till September 11, the central bank said. The schemes for External Commercial Borrowings (ECBs) and Overseas Foreign Currency Borrowings (OFCBs) will continue to remain open until December 31, 2026.
The RBI had introduced the special US dollar-rupee forex swap facility on June 8, allowing banks to mobilise fresh three-to-five-year FCNR(B) deposits and swap these deposits with the central bank at a concessional rate. The facility effectively covered the entire hedging cost for banks.
The latest data reported by authorised dealer banks show that the three components of the special forex facility have attracted a total of $56.846 billion in foreign currency inflows till August 13. FCNR(B) deposits accounted for the overwhelming majority at $52.3 billion, followed by OFCBs at $2.805 billion and ECBs at $1.741 billion.
The scale of FCNR(B) mobilisation is significantly higher than the amount raised in the initial weeks of the scheme. At that stage, bankers expected the inflows to accelerate in August and September.
Non-resident Indians and persons of Indian origin can open FCNR(B) deposits. It’s fully repatriable and exempt from tax in India.
Liquidity, stability measure
The RBI’s special facility was part of a broader package announced in June to encourage foreign capital inflows, strengthen the rupee and improve foreign exchange reserves. The central bank had also eased norms for state-owned enterprises to borrow overseas and provided a concessional swap facility to encourage ECBs by public sector firms.
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“Unlike 2013, the rupee has not appreciated significantly due to global uncertainties, geopolitical risks, and weaker capital flow dynamics. Additionally, RBI’s large forward forex obligations may constrain any visible rise in reserves,” CareEdge Ratings said in a report. Overall, the scheme should be viewed primarily as a liquidity and stability measure rather than a driver of sharp currency appreciation or reserve accumulation, it said.
At the core of the FCNR(B) facility was the RBI’s decision to absorb the hedging cost for banks. By allowing banks to swap the foreign currency raised through eligible deposits with the RBI at concessional terms, the central bank made FCNR(B) deposits a more attractive source of overseas funding.
The move was important because the cost of hedging foreign currency deposits had made the mobilisation of such funds less attractive for Indian banks. The RBI’s intervention effectively lowered that cost and enabled banks to offer more competitive rates to non-resident depositors.
The RBI had also temporarily withdrawn the interest rate ceiling on fresh FCNR(B) deposits of three-to-five-year tenors until September 30. Banks subsequently began offering higher rates to attract overseas funds. Several banks were offering rates of around 7% on FCNR(B) deposits.
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The special swap scheme revived a tool last used by the RBI in 2013, when the central bank had sought to attract foreign currency inflows amid pressure on the rupee. This time, the facility was introduced against a backdrop of pressure on the currency and the need to attract foreign capital.
RBI cuts FCNR(B) window; ECB, OFCB schemes stay open
The RBI’s decision to bring forward the cut-off for fresh FCNR(B) deposits, while keeping the ECB and OFCB schemes open until December 31, reflects the strong response to the deposit component.
Under the facility, the RBI provides a plain buy/sell foreign exchange swap covering the principal amount of eligible FCNR(B) deposits, and not the interest component. Banks can undertake swaps of less than three years provided they have mobilised eligible FCNR(B) deposits with an original maturity of at least three years.
For ECBs, the facility is available for borrowings with an average maturity of three years and above, with the swap tenor linked to the repayment schedule or the ECB maturity, subject to a maximum of five years.
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With the FCNR(B) mobilisation window now set to close on August 31, banks have a little over two weeks to raise fresh deposits under the special facility.
Banks are passing on the above benefits to NRIs by offering higher FCNR deposit rates and facilitating leveraged structures. A leveraged FCNR deposit is an investment strategy used by overseas investors to enhance returns from a standard FCNR(B) fixed deposit.
The investor contributes a portion of the investment from their own funds and borrows additional foreign currency against the deposit through the bank or an affiliated overseas lender, generally at a fixed coupon. The borrowed funds are also invested in FCNR deposits, creating a significantly larger deposit base. The strategy is based on interest rate arbitrage, whereby the investor earns a higher interest rate on the FCNR deposit than the cost of borrowing. The difference between the deposit yield and the borrowing cost generates additional returns, CareEdge said.