FCNR(B) Deposits and RBI's Forex Swap Facility (Economy)
FCNR(B) Deposits and RBI's Forex Swap Facility (Economy)
Why In News:
The Reserve Bank of India (RBI) brought forward the deadline for banks to mobilise Foreign Currency Non-Resident Bank [FCNR(B)] deposits under its special forex swap facility to 31 August 2026 (from the original 30 September), after the scheme attracted over USD 56.8 billion in total inflows.
What is the FCNR(B) Scheme?
An FCNR(B) account lets Non-Resident Indians (NRIs) maintain a fixed deposit in India in freely convertible foreign currencies (such as USD or GBP) for a tenure of one to five years.
Unlike the earlier FCNR(A) scheme (where the RBI bore the exchange rate risk), under FCNR(B) the bank bears the exchange rate risk; FCNR(A) was phased out by 1994.
The RBI bears the full hedging cost under this facility, enabling banks to offer more competitive/attractive interest rates to NRI depositors.
Key Numbers related to the scheme
The three channels covered under the broader swap facility - FCNR(B) deposits, External Commercial Borrowings (ECBs), and Overseas Foreign Currency Borrowings (OFCBs) - together generated USD 56.8 billion in inflows as of 13 August 2026.
FCNR(B) deposits alone accounted for about USD 52.3 billion of these inflows.
India's foreign exchange reserves rose by USD 14.14 billion in the week ended 7 August 2026 to reach USD 707 billion, the biggest weekly gain since end-January.
Total bank deposits in India reached a record ₹269.4 trillion as of 31 July 2026, partly attributed to conversion of dollar inflows under the FCNR(B) scheme into rupees.
Key Facts for Prelims
NRE (Non-Resident External) and NRO (Non-Resident Ordinary) are the other major deposit categories available to NRIs, distinct from FCNR(B) in currency denomination and repatriability.
Such swap facilities are typically used by the RBI to attract stable, long-tenure forex inflows, cushion the rupee, and manage balance-of-payments pressures - a strategy first prominently used by then-RBI Governor Raghuram Rajan in 2013.
The RBI's bi-monthly Monetary Policy Committee (MPC) separately reviews benchmark interest rate ceilings applicable to FCNR(B) deposits.