The Reserve Bank of India (RBI) recently reintroduced a US dollar-rupee forex swap facility aimed at attracting fresh Foreign Currency Non-Resident (Bank), or FCNR(B), deposits. Available for deposits mobilized between June 8, 2026, and September 30, 2026, this strategic move echoes a successful mechanism last deployed during the 2013 currency crisis to stabilize the rupee and boost foreign exchange reserves.
Here is a breakdown of how the scheme works, its benefits, and what Non-Resident Indians (NRIs) should consider before investing.
What is the FCNR(B) Swap Scheme?
FCNR(B) accounts are term deposits maintained by NRIs in freely convertible foreign currencies, such as US dollars, pounds sterling, or euros. The new swap facility specifically applies to fresh deposits with a maturity of three to five years.
The most significant aspect of this scheme is the “swap” itself. Normally, when Indian banks raise foreign currency deposits and deploy those funds domestically, they face a hedging cost of roughly 3% to 3.5% per year to protect against currency mismatch. Under this new window, the RBI absorbs that entire hedging cost on behalf of the banks.
Key Benefits for Depositors
By stepping in to cover the hedging costs and exempting these specific deposits from standard Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR) requirements, the RBI has made these deposits highly lucrative for banks. This translates to several benefits for the depositor:
- Higher Interest Rates: Because banks no longer have to pay the 3% hedging fee, they can pass those savings on to depositors. Experts anticipate that banks will be able to offer USD deposit rates in the range of 6% to 7%.
- Protection Against Rupee Depreciation: FCNR(B) deposits are held entirely in foreign currency. Because investors deposit dollars and receive their principal and interest back in dollars, they are completely insulated from any depreciation of the Indian Rupee.
- Tax Exemptions in India: The interest earned on FCNR(B) deposits is fully exempt from income tax in India as long as the depositor maintains their eligible NRI status.
Will it Replicate the 2013 Boom?
When the RBI launched a similar scheme in 2013 under then-Governor Raghuram Rajan, banks mobilized an impressive $34 billion. However, market experts caution that the global financial landscape has shifted. In 2013, US interest rates were exceptionally low, creating a massive 5.5% to 6% gap between US rates and Indian FCNR returns, which encouraged highly leveraged borrowing by overseas investors. Today, with US Treasury yields sitting around 4.5%, that interest rate gap is much narrower (around 1.5%), which means the financial windfall is less dramatic.
Practical Considerations for NRIs
While the scheme offers a compelling investment opportunity, NRIs should weigh several practical factors:
- Jurisdiction and Taxation: Where you live dictates what you actually keep. For NRIs residing in the Gulf, the 6-7% return is highly attractive because the interest is tax-free in both India and their home country. Conversely, US-based NRIs must pay US taxes on this interest, which reduces the effective post-tax return to roughly 4.5% to 5%—a rate more comparable to standard US Certificates of Deposit (CDs).
- Lock-in Period: The underlying FCNR(B) deposits carry a strict one-year lock-in period. While banks may allow premature withdrawals after the first year, the swap agreements made with the RBI cannot be canceled.
- Bank Discretion: The RBI does not guarantee or fix the final interest rate; banks are free to determine their own rates based on internal policies. Investors should actively compare rates across different institutions and consider the credit quality of the bank before committing their funds.
Note: This article is for informational purposes and should be used as a starting point. Investors should consult with financial or tax advisors to understand how these deposits fit into their specific financial situations.