RBI Advances FCNR(B) Swap Deadline to Aug 31, 2026

The Reserve Bank of India (RBI) has advanced the deadline for its special dollar-rupee swap facility for new Foreign Currency Non-Resident (Bank), or FCNR(B), deposits. Originally set for September 30, the facility will now close on August 31, 2026, with banks having until September 11 to finalize these swaps with the RBI.

This decision follows an unexpectedly rapid accumulation of FCNR(B) deposits under the scheme. Total inflows, encompassing external commercial borrowings (ECBs) and overseas foreign currency borrowings (OFCBs), also saw significant growth.

Key Inflow Figures

• FCNR(B) deposits under the facility reached $52.3 billion by August 13.
• Total inflows, including ECBs and OFCBs, amounted to $56.846 billion.
• Approximately $15.6 billion in FCNR(B) deposits flowed in during less than two weeks in August.

FCNR(B) deposits enable Non-Resident Indians (NRIs) to maintain their funds in foreign currencies such as USD, GBP, or EUR. This differs from NRE deposits, where foreign currency is converted into rupees upon deposit.

The Special Swap Facility Explained

While FCNR(B) deposits are a longstanding offering, the special RBI swap facility was introduced in June 2026. This particular arrangement targeted FCNR(B) deposits with a three to five-year tenor.

The facility provided Indian banks with several incentives to attract foreign currency inflows:

• A special dollar-rupee swap offered at par, significantly reducing hedging costs for banks.
• Exemption from both Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR) requirements.
• Greater flexibility in deposit pricing, which prompted banks to offer higher interest rates to NRIs.

RBI’s Strategic Intent

The RBI initiated this measure in an environment of global economic uncertainties, including the West Asia conflict and rising energy prices. These factors held the potential to impact India’s current account balance.

The primary objective was to attract foreign capital and bolster India’s balance of payments. This move was not driven by a shortage of foreign exchange reserves, which stood at a comfortable $682.3 billion as of May 29.

How the Swap Mechanism Operates

The FCNR(B) swap mechanism involves a structured process that benefits multiple parties. It ensures foreign currency is channeled into the Indian banking system while mitigating foreign exchange risk for banks.

• An NRI deposits foreign currency with an Indian bank.
• The bank then sells these dollars to the RBI, receiving rupees in return.
• These rupee funds are subsequently utilized by the bank for its lending activities.
• Upon the deposit’s maturity, the bank repurchases the dollars from the RBI at the identical initial rate to repay the NRI.

This swap arrangement covers only the principal amount of the deposit. It benefits NRIs through foreign currency interest, provides banks with rupee funds without foreign exchange risk and reduced hedging costs, and temporarily increases the RBI’s foreign exchange assets. However, the rupee liquidity injected into the banking system by the RBI necessitates additional liquidity management.

Why the Deadline Was Accelerated

The decision to advance the deadline was primarily due to the