Mumbai: The Reserve Bank of India (RBI) Governor Sanjay Malhotra on Wednesday said that economic benefit is more important than the hedging cost borne by the central bank on the foreign currency non-resident (bank) or FCNR(B) deposits scheme.
In an effort to boost foreign exchange reserves and stabilise balance of payment conditions, the RBI announced a special forex swap facility for banks in June this year, allowing lenders to raise interest rates on deposits in FCNR (B) accounts.
The now-closed scheme enabled banks to offer higher interest rates on deposits in foreign currency by non-resident Indians as the currency risk or hedging cost was borne by the central bank. Analysts had pegged this cost at around 2.8-3.0 per cent annually, while there have also been concerns voiced on the rationale for the scheme itself given the costs.
“FCNR-B deposits also raise some questions on costs to the Reserve Bank. That is not our primary motive. I’ll request all to look at the overall benefits to the economy,” Malhotra said during the post-monetary policy press conference here.
As per RBI’s notification, under the swap arrangement, a bank can sell US dollars to RBI and simultaneously agree to buy the same amount of dollars at the end of the swap period, in multiples of 1 million US dollars. The swap will be undertaken at a fixed rate of 1.5 per cent per annum compounded semi-annually.
In the first leg of the transaction, the bank will sell US dollars to RBI at the FBIL Reference Rate. The settlement of the first leg of the swap will take place on a spot basis. In the reverse leg of the swap transaction, rupee funds will have to be returned to RBI along with the swap premium to obtain the US dollars back, the RBI circular said.
Foreign Currency Non-Resident (Bank) deposits are foreign currency term deposits maintained by non-resident Indians (NRIs).
The RBI’s special USD-INR forex swap facility for FCNR (B) deposits, Overseas Foreign Currency Borrowings (OFCB) and External Commercial Borrowings (ECBs) was launched on June 8, 2026. The scheme was open till August 31 for FCNR(B) deposits, and will be open until December 31, 2026 for ECBs and OFCBs.
As of August 31, banks have mobilised USD 133 billion through the special Foreign Currency Non-Resident (FCNR-B) deposit scheme.
The RBI governor further asserted that the risks associated with repayment of FCNR-B deposits will remain manageable, saying strong macroeconomic fundamentals, adequate forex reserves and an expected improvement in the external sector will provide sufficient cushion.
“Wherever the repayment is concerned, our macroeconomic fundamentals are very strong,” Malhotra said.
He said the recent pressure on the current account and moderation in external flows were temporary and expressed confidence that the external sector would improve “sooner than later”.
“This is a temporary issue, and sooner than later, our external sector will also improve,” Malhotra said.
