The Reserve Bank of India (RBI) has introduced a US dollar-rupee forex swap facility for fresh Foreign Currency Non-Resident (Bank) — or FCNR(B) — deposits mobilised by banks, applicable to tenors of three to five years. The move is part of India’s strategy to attract longer-duration foreign currency inflows and strengthen its external financing position amid global uncertainty.

This blog unpacks what the facility is, how it works mechanically, what it means for Non-Resident Indians (NRIs) considering FCNR(B) deposits, and how banks are already responding.

What Are FCNR(B) Deposits?

Foreign Currency Non-Resident (Bank) deposits, commonly called FCNR(B) deposits, are fixed-term deposits held by Non-Resident Indians (NRIs) and Persons of Indian Origin (PIOs) in foreign currency with Indian banks.

Unlike NRE or NRO savings accounts, FCNR(B) deposits are specifically designed to insulate the depositor from exchange-rate risk. Both principal and interest remain denominated in the foreign currency chosen at the time of deposit.

Key Features of FCNR(B) Deposits

Held in freely convertible foreign currencies (USD, GBP, EUR, JPY, CAD, AUD, and more) •  Fully repatriable •  Exchange risk borne by the bank, not the depositor •  Interest is tax-free in India for NRIs •  Tenor: 1 to 5 years under normal rules

What the RBI Has Announced

Under the new RBI circular, banks are now permitted to enter into USD-INR swap transactions directly with the RBI for FCNR(B) deposits that meet specific criteria. The facility is designed to reduce the cost and risk for banks of offering higher interest rates on longer-term foreign currency deposits.

The key operational parameters are:

• Eligible deposits must have a tenor of 3 to 5 years.
• The swap is available for fresh deposits in any freely convertible currency, including renewals at maturity.
• The actual swap transaction with the RBI is conducted only in US dollars, regardless of the original deposit currency.
• Banks may sell US dollars to the RBI in multiples of USD 1 million and simultaneously agree to repurchase the same amount at the end of the swap period.
• The first leg of the swap is settled at the FBIL (Financial Benchmarks India Pvt. Ltd.) reference rate; the second leg is settled at the same rate, making it a par swap.
• Once a swap is undertaken with the RBI, it cannot be cancelled.
• The underlying deposits carry a minimum lock-in of one year; early withdrawal after that is subject to individual bank policy.
• The facility is operated by the RBI’s Financial Markets Operations Department, Mumbai.

What Is a Par Swap?

A par swap means both legs of the transaction — the initial sale and the eventual buyback of US dollars — are settled at the same exchange rate (the FBIL reference rate). This means the bank faces no currency appreciation or depreciation risk on the swap itself; the RBI absorbs that risk.

How the Swap Mechanism Works: Step by Step

The following table illustrates the flow of the RBI’s FCNR(B) swap mechanism:

Step	Stage	What Happens
1	NRI Opens Deposit	An NRI places a fresh FCNR(B) deposit with a bank for 3–5 years in a freely convertible currency.
2	Bank Converts to USD	The bank converts the deposit into USD if it was not already in USD.
3	Bank Sells USD to RBI (Leg 1)	The bank sells USD (minimum USD 1 mn, in multiples) to the RBI at the FBIL reference rate on the date of the swap.
4	Bank Deploys INR	The bank now holds INR, which it can deploy in the domestic economy at prevailing rupee interest rates.
5	Swap Matures	At the end of the agreed swap period (matching the deposit tenor), the bank buys back the same USD from the RBI at the same FBIL reference rate (par swap).
6	Deposit Matures	The bank repays the NRI depositor in the original foreign currency, principal plus agreed interest.

Why Did the RBI Introduce This Facility?

India’s external financing requirements are ongoing, and the RBI periodically calibrates tools to manage foreign currency inflows. The FCNR(B) swap facility serves multiple macro-level objectives:

• Attracting longer-duration foreign currency inflows, which are more stable than short-term portfolio flows.
• Reducing the forex conversion risk that banks bear when mobilising FCNR(B) deposits, thereby encouraging them to offer more competitive rates to NRIs.
• Supporting the rupee’s stability by increasing the supply of foreign currency reserves.
• Improving India’s external financing conditions, particularly relevant amid global interest rate volatility.

This is not the first time the RBI has used FCNR(B) swaps as a policy tool. A notable precedent was the 2013 scheme that helped stabilise the rupee during a period of sharp depreciation. The current facility appears to be a more institutionalised, ongoing version of that approach.

What This Means for NRIs

The most direct impact for NRIs is the prospect of better interest rates on FCNR(B) deposits, particularly for 3- to 5-year tenors.

By enabling banks to offload their forex risk to the RBI, the swap facility lowers the cost for banks to offer higher deposit rates. Banks no longer need to build a large risk premium into FCNR(B) rates to compensate for long-tenor exchange rate exposure.

Rate Movements Already Visible

Following the RBI’s announcement, banks have moved quickly to revise their FCNR(B) rates. The table below captures indicative rates effective June 2026:

Bank	3-Year Rate	4-Year Rate	5-Year Rate
Punjab National Bank (PNB)	6.00%	6.05%	6.10%
AU Small Finance Bank	up to 7.10%*	—	—

* AU Small Finance Bank revised its peak USD FCNR(B) rate from 5.15% to 7.10%, effective 10 June 2026. Other banks are expected to follow.

Key Considerations for NRIs

• Higher rates are available primarily on 3–5 year deposits. NRIs comfortable with a longer lock-in can benefit most.
• There is a minimum lock-in of one year. Early withdrawal is possible subject to the bank’s own premature withdrawal policy, but the bank’s swap with the RBI cannot be cancelled.
• FCNR(B) deposits remain fully repatriable — the swap is a back-end arrangement between the bank and the RBI and does not affect the NRI’s rights.
• Interest income from FCNR(B) deposits remains tax-free in India for qualifying NRIs.
• Exchange rate risk continues to be borne by the bank, not the depositor. NRIs will receive the original currency (e.g., USD) at maturity.

What This Means for Banks

• Banks can now mobilise long-tenor foreign currency deposits more aggressively without taking on the full currency risk of a 3–5 year USD-INR position.
• The par-swap structure means no mark-to-market loss for banks on the swap leg itself.
• Banks can deploy the INR proceeds from the swap in the domestic economy, including lending, government securities, or other uses.
• The irreversibility of the swap (once entered, it cannot be cancelled) requires banks to carefully match their FCNR(B) deposit pipeline with their swap commitments.
• For smaller banks like AU Small Finance Bank, the facility provides an institutional backstop that allows them to compete with larger PSU banks on deposit rates.

FCNR(B) Deposits: Before and After the Swap Facility

Aspect	Before Swap Facility	After Swap Facility
Bank’s forex risk on 3–5 yr deposits	Fully on the bank’s books	Can be transferred to RBI via par swap
Incentive to offer higher FCNR rates	Limited by risk premium	Increased — risk offloaded to RBI
NRI deposit rates (indicative)	~5% for USD 3-yr deposits	6%–7.1% post-announcement
Lock-in requirement	Normal bank policy	Minimum 1 year mandated by RBI
Swap cancellation	N/A	Not permitted once entered

Frequently Asked Questions (FAQs)

Q1. What is the RBI’s new FCNR(B) swap facility?

The RBI has introduced a mechanism under which banks can sell US dollars to the RBI against FCNR(B) deposits with a 3–5 year tenor and agree to buy them back at the end of the swap period at the same rate. This is a par swap, settled at the FBIL reference rate. The objective is to reduce the currency risk that banks absorb on long-tenor NRI deposits and encourage higher deposit inflows from abroad.

Q2. How does this benefit NRIs?

The facility is expected to result in higher interest rates on FCNR(B) deposits, particularly for 3–5 year tenors. Since banks can now offload their forex risk to the RBI at no cost, they have a stronger incentive to attract NRI deposits by offering more competitive rates. NRIs’ fundamental rights — full repatriability, tax-free interest in India, and no exchange risk — remain unchanged.

Q3. Which currencies are eligible for the FCNR(B) swap?

FCNR(B) deposits can be held in any freely convertible currency. However, the actual swap transaction with the RBI is conducted only in US dollars. If a deposit is in a currency other than USD, the bank converts it to USD before executing the swap with the RBI.

Q4. What is the minimum deposit or transaction size?

Banks can enter into swap transactions with the RBI in multiples of USD 1 million. There is no specified minimum deposit amount for individual NRI depositors — that is determined by each bank’s product policy.

Q5. What happens if the NRI wants to withdraw the deposit early?

FCNR(B) deposits under this facility carry a minimum lock-in period of one year. After that, premature withdrawal may be permitted based on the individual bank’s policy. However, once a bank has entered into a swap with the RBI for that deposit, the swap cannot be cancelled. This means banks will factor in the cost of swap-lock-in when setting premature withdrawal terms.

Q6. What is the FBIL reference rate?

FBIL stands for Financial Benchmarks India Pvt. Ltd., a company that publishes reference rates for various financial instruments in India, including USD/INR spot rates. The FCNR(B) swap transactions are settled at the FBIL USD/INR reference rate prevailing on the date of the first leg. Since it is a par swap, the same rate is used at maturity, eliminating currency gain or loss for the bank.

Q7. Which banks have already revised FCNR(B) rates following this announcement?

Punjab National Bank (PNB) has revised rates to 6.00% (3-year), 6.05% (4-year), and 6.10% (5-year). AU Small Finance Bank has raised its peak USD FCNR(B) rate from 5.15% to 7.10%, effective June 10, 2026. Other banks are expected to follow as they assess their deposit mobilisation targets and swap capacity.

Q8. Is this facility available for NRO or NRE accounts?

No. The RBI’s swap facility applies specifically to FCNR(B) deposits — fixed-term foreign currency deposits. NRO and NRE savings accounts are not covered by this scheme.

Q9. Does this mean the RBI is absorbing exchange rate risk on behalf of banks?

Effectively, yes. The par-swap structure means the bank buys back the same USD at the same rate it sold at, with no mark-to-market exposure on the swap. The RBI accepts the currency risk on its own balance sheet in exchange for achieving the policy goal of attracting long-tenor foreign currency inflows.

Q10. Is this a new mechanism or has something similar been done before?

The RBI used a comparable FCNR(B) swap scheme in 2013 to stabilise the rupee during a period of sharp depreciation. That scheme was credited with mobilising over USD 34 billion in a short period. The current facility appears to be a more permanent, institutionalised version of that approach, available on an ongoing basis for 3–5 year deposits.