FCNR(B) swap window explained:
Why RBI opened it, then advanced deadline
New Delhi, Aug 17, 2026
RBI has brought forward the deadline for its special FCNR(B) swap window to August 31. Here's what it means
The Reserve Bank of India (RBI) has shortened the deadline for fresh Foreign Currency Non-Resident (Bank), or FCNR(B), deposits to qualify for its special dollar-rupee swap facility to August 31 from September 30. Banks can execute swaps against these eligible deposits with the RBI until September 11.
The move came as FCNR(B) deposits under the facility reached $52.3 billion by August 13. Including external commercial borrowings (ECBs) and overseas foreign currency borrowings (OFCBs), total inflows under the facility stood at $56.846 billion. But what exactly is an FCNR(B) deposit?
What is an FCNR(B) deposit?
FCNR(B) stands for Foreign Currency Non-Resident (Bank) deposit. It is a bank deposit that allows NRIs to keep their money in a foreign currency rather than converting it into rupees.
This is different from an NRE (Non-Resident External) deposit. In an NRE deposit, foreign currency brought into India is converted into rupees and the deposit is held in rupees.
With an FCNR(B) deposit, the money remains in a foreign currency such as the US dollar, pound or euro. The deposit itself is not new. It is an existing product offered by Indian banks.
What is new is the special RBI swap facility linked to fresh FCNR(B) deposits.
What did RBI change in 2026?
In June, the RBI introduced a special US dollar-rupee forex swap facility for fresh FCNR(B) deposits with a tenor of three to five years. The swap facility with the RBI is available in US dollars, even if the underlying deposit is in another freely convertible currency.
The RBI offered banks three important incentives.
First, the special dollar-rupee swap. A bank could sell dollars to the RBI and simultaneously agree to buy the same amount back at the end of the swap. The first and second legs are done at the same exchange rate, or at par. This reduces the bank’s currency-hedging cost.
Second, a CRR and SLR exemption. Fresh eligible FCNR(B) deposits were exempted from maintaining cash reserve ratio (CRR) and statutory liquidity ratio (SLR). This makes such deposits more useful to banks because they do not have to set aside the usual reserves against these deposits.
Third, banks got more flexibility on deposit pricing. They could price these deposits within the overall limits set by RBI. Banks subsequently raised interest rates to attract more NRI dollar deposits.
Why did RBI wanted to achieve?
The decision came against a backdrop of global uncertainty and higher energy prices linked to the West Asia conflict. In its June monetary policy statement, the central bank flagged risks from the conflict in West Asia, higher energy prices, supply-chain disruptions and volatility in currency markets. Higher energy prices could also put pressure on India’s current account.
At the same time, India saw $13.7 billion in net foreign portfolio outflows in 2026-27 up to June 2, mainly from equities.
India’s foreign exchange reserves were still comfortable at $682.3 billion as of May 29, according to the RBI. So, the FCNR(B) facility was not meant to address a shortage of reserves. Rather, the RBI's stated objective for the swap measures was to attract foreign capital and strengthen India's balance of payments.
How does the FCNR(B) swap actually work?
Consider a simple example of an NRI placing $50,000 in an eligible FCNR(B) deposit.
Step 1: An NRI puts $50,000 into an eligible FCNR(B) deposit with an Indian bank.
Step 2: The bank now has a $50,000 foreign-currency liability to the NRI. It has to return the dollars when the deposit matures.
Step 3: The bank sells the $50,000 to the RBI under the special swap facility.
Step 4: The RBI gives the bank the equivalent amount in rupees. The bank can then use these rupees for lending or other permitted purposes.
Step 5: At the end of the swap, the bank returns the rupee amount to the RBI and receives the dollars back.
Step 6: The bank can then use those dollars to meet its obligation to the NRI when the FCNR(B) deposit matures.
The RBI swap covers only the principal amount of the deposit, not the interest payable to the NRI.
Who benefits from the arrangement?
The NRI: The depositor gets an opportunity to earn interest on a foreign-currency deposit while keeping the money in foreign currency.
The bank: The bank gets access to rupee funds without taking the same foreign-exchange risk it would face if it converted the dollars into rupees on its own. The swap also reduces its hedging cost. Banks have raised FCNR(B) rates sharply to attract deposits under the scheme.
The RBI: The central bank receives foreign currency in the first leg of the swap, which can increase its gross foreign-exchange assets during the tenor of the transaction. But it also commits to return the same amount of dollars to the bank at maturity. The swap therefore carries a corresponding forward obligation and should not be viewed as an unconditional, permanent addition to the RBI's reserves.
But doesn't RBI give banks rupees in return?
Yes. And that creates a monetary-policy angle. When banks sell dollars to the RBI, the central bank pays them rupees. This adds rupee liquidity to the banking system.
In other words, the swap solves one problem -- bringing foreign currency into India -- but can create an additional liquidity-management task for the RBI.
The central bank can absorb excess liquidity through its regular monetary-policy and liquidity-management operations. The RBI had already been using both durable and short-term measures to manage banking-system liquidity in June.
Why did RBI advance the deadline?
The facility attracted foreign currency much faster than anticipated.
FCNR(B) deposits under the scheme stood at $36.725 billion as of July 31. By August 13, the figure had jumped to $52.3 billion -- an increase of about $15.6 billion in less than two weeks. The RBI's August 14 data put total inflows from FCNR(B) deposits, ECBs and OFCBs under the swap facilities at $56.846 billion.
The pace of mobilisation is particularly notable because, on August 5, RBI Governor Sanjay Malhotra had said: "As of now, there is no proposal under consideration to close the scheme prematurely. We will keep you posted on this."
Nine days later, the RBI brought forward the deadline for eligible FCNR(B) deposits by a month.
The RBI itself said the decision to advance the deadline followed the “encouraging response” to the swap facility and the resulting forex inflows. The sharp rise in deposits indicates that the incentives generated substantial inflows quickly. However, the RBI has not disclosed a specific mobilisation target or said that the deadline was advanced because such a target had been reached.
Has RBI done this before?
Yes. The RBI introduced a similar FCNR(B) dollar swap window in 2013, when the rupee was under intense pressure.
The 2013 facility allowed banks to swap fresh FCNR(B) dollar funds with the RBI for deposits with a minimum tenor of three years. Banks sold dollars to the RBI and agreed to buy them back later. The swap was offered at a fixed rate of 3.5 per cent a year.
The 2026 situation, however, is different. The RBI entered the current episode with forex reserves of $682.3 billion and described them as adequate.
FCNR(B) deposits are not going away
The early closure applies to the special swap facility, not to FCNR(B) deposits as a banking product.
The last date for a fresh FCNR(B) deposit to qualify for the special swap facility is August 31, 2026. Banks have until September 11 to execute the eligible swaps with the RBI. The separate swap schemes for ECBs and OFCBs remain open until December 31, 2026. Regular FCNR(B) deposits can also continue outside the special swap arrangement.
[The Business Standard]
