RBI giving consessional swaps to attract foreign investments

TL;DR

• RBI has reopened a special FCNR(B) swap window for banks till September 30, 2026.

• The move comes after FCNR(B) inflows fell from $7.1 billion in FY25 to about $900 million in FY26.

• India's forex reserves have also declined from around $728 billion to $682 billion.

• RBI is absorbing banks' currency hedging costs, enabling them to offer more attractive FCNR(B) rates.

• Analysts estimate the scheme could attract $30-50 billion in fresh NRI inflows.

• However, unlike 2013, NRIs today can earn around 4 - 4.5% on US Treasury securities, making competition for dollar deposits much tougher.

Introduction

The Reserve Bank of India (RBI) has reopened its special FCNR(B) swap window for banks until September 30, 2026. Under the scheme, the RBI will absorb banks' USD-INR hedging costs, could helping them offer more attractive FCNR(B) deposit rates to NRIs. In this article, let's discuss why the central bank has brought it back. 

What Is RBI Actually Offering?

The RBI is not directly paying higher interest to NRIs.

Instead, it is absorbing the USD-INR hedging cost that banks normally incur when they raise dollar deposits and lend in rupees.

This lowers banks' funding costs and gives them room to offer more attractive FCNR(B) deposit rates to NRI investors.

According to Reuters, The scheme is available for fresh FCNR(B) deposits mobilised between June 8 and September 30, 2026, while banks can access the RBI swap facility until October 16, 2026.

Eligible deposits generally have a 3-5 year tenure and a minimum one-year lock-in period. Also, a swap facility with the RBI cannot be cancelled.

Key Details of the 2026 FCNR(B) Scheme

What Is an FCNR(B) Deposit?

FCNR(B) stands for Foreign Currency Non-Resident Bank Deposit.

These deposits allow NRIs to keep money in foreign currencies such as USD, GBP, EUR, AUD, CAD, etc. Both principal and interest remain in the foreign currency. This means the investor does not take direct rupee depreciation risk.

Why Has RBI Brought Back the FCNR(B) Scheme?

India's external position has likely come under pressure in 2026.

The rupee has weakened by around 7%. While India's forex reserves have fallen from a peak of approximately $728 billion to about $682 billion.

At the same time, FCNR(B) inflows have collapsed from $7.1 billion in FY25 to around $900 million in FY26.

Rather than directly intervening in the currency market, the RBI might have chosen a proven strategy of attracting foreign currency deposits from NRIs.

The 2013 Success Story RBI Could Trying to Repeat

This is not the first time RBI has used this strategy. During the 2013 taper tantrum and rupee crisis, the RBI introduced a similar FCNR(B) scheme that helped Indian banks mobilise approximately $25 billion in foreign currency deposits. That historical success explains why the market could be paying close attention to the 2026 version.

Why 2026 Is Very Different From 2013

While the 2013 scheme was highly successful, the environment today is completely different. Earlier, US interest rates were near zero, leaving NRIs with limited options for earning returns on dollar savings. Today, US Treasury securities yield around 4-4.5%, providing investors with a relatively safe alternative. As a result, banks might need to offer significantly more attractive FCNR(B) returns to convince NRIs to move their dollars to India. Therefore, this is likely to be the biggest determinant of the scheme's success.

How Much Money Could Flow Into India?

According to pressinsider, market estimates vary, with analysts projecting potential inflows ranging from $30 billion to $50 billion under the RBI FCNR Swap Scheme. 

Hence, even a portion of these inflows could be meaningfully improve India's forex reserves and support the rupee.

Why Rupee Depreciation Could Not Affect the Depositor

One unique feature of FCNR(B) deposits is that both investment and repayment happen in dollars.

The depositor puts in USD and receives USD back at maturity.

As a result, whether the rupee moves from 80 to 95 per dollar might not directly affect the investor's principal or return. The currency mismatch is managed through RBI's swap mechanism.

What Could This Mean for India?

If successful, the FCNR(B) swap scheme could

• Increase forex reserves.

• Improve dollar liquidity.

• Reduce pressure on the rupee.

• Strengthen investor confidence.

• Provide stable long-term foreign currency funding.

For the RBI, the objective might not be simply attracting deposits but could also be strengthening India's external balance sheet at a time of global uncertainty.