RBI’s FCNR(B) Swap Cost Minimal: $10.5B, SBI Research

A recent SBI Research report reveals that the Reserve Bank of India’s (RBI) concessional swap facility for FCNR(B) deposits incurred an estimated cumulative hedging cost of $10.5 billion over five years. This cost is deemed insignificant, representing only 1.45% of India’s current foreign exchange reserves.

Assessing the Cost Against Reserves

The report clarifies that this $10.5 billion cost did not influence the RBI’s decision to prematurely close the swap window on August 31, a month ahead of schedule. Such an amount accounts for a minor fraction of the nation’s financial buffers.

India’s current foreign exchange reserves stand at around $700 billion, with projections reaching $800 billion over the next five years. The hedging cost represents only 1.45% of current reserves and 1.27% of projected reserves.

FCNR(B) Mobilisation Exceeds Expectations

SBI Research estimates significant mobilization through the FCNR(B) route, alongside other overseas foreign currency borrowings (OFCBs) and external commercial borrowings (ECBs). The early closure of the swap window likely occurred because the RBI had already achieved its mobilization targets.

FCNR(B) mobilization could reach $60-65 billion, with total mobilization including OFCBs and ECBs potentially rising to $80-85 billion. By August 13, $52.3 billion was mobilized via FCNR(B) deposits, contributing to a total of $56.8 billion across all three routes.

An additional $25-30 billion inflow is anticipated in August, which would push total collections to approximately $85 billion. This projected inflow indicates the facility’s success in attracting foreign currency.

India’s Balance of Payments Outlook

Looking ahead, the report projects a sustained surplus in India’s balance of payments, indicating a healthy external sector position. The current account deficit is also expected to remain at a manageable level, around 1% of GDP.

The RBI has already recouped $31.2 billion in foreign currency assets by August 7. This recovery strengthens India’s overall financial stability.

Opportunities in US Securities

The Reserve Bank of India also holds potential to enhance its investments in US securities, leveraging higher yields available in that market. This strategy could optimize returns on its foreign currency assets, as India’s holdings of US securities were $181 billion in May 2026.

This figure represents a decrease from $235 billion a year prior. The current scenario suggests scope for increased investment in these instruments.