New Delhi, June 23: The Reserve Bank of India (RBI) has recently issued clarifications regarding the Foreign Currency Non-Resident (Bank) deposit scheme, known as FCNR(B), and the associated special swap facility. The central bank confirmed that Indian banks can provide loans to Non-Resident Indian (NRI) customers against their FCNR(B) deposits. Additionally, banks are permitted to place liens on these deposits for the loans provided.
The RBI further clarified that under the special foreign currency swap facility, it will only cover the hedging cost on the principal amount of the FCNR(B) deposits. Interest earned on these deposits will not be included in this facility. This measure aims to assist banks in accurately pricing the deposits raised under this scheme.
On June 5, 2026, RBI Governor Sanjay Malhotra announced various measures to enhance foreign currency inflow and strengthen the country’s external financial position. This included the introduction of the FCNR(B) deposits, External Commercial Borrowing (ECB), and the special swap facility for foreign currency borrowing.
Under this scheme, the RBI will bear the full hedging cost for new FCNR(B) deposits with a maturity of three to five years raised by banks until September 30, 2026. This initiative is designed to encourage banks to attract more foreign currency deposits.
According to the FAQs released by the RBI, Indian banks and their foreign branches can extend loans to NRI customers holding FCNR(B) deposits. Moreover, banks can issue Standby Letters of Credit (SBLC) in favor of foreign lenders.
The central bank clarified that banks can also provide loans to FCNR(B) account holders abroad, with the corresponding deposit amount serving as collateral.
The RBI emphasized that only the principal amount of the deposit will be covered under the special swap facility. Interest earned on the deposit will need to be managed separately by the banks.
However, if an FCNR(B) deposit has a principal tenure of three years or more, and less than three years remains at the time of availing the swap facility, banks can still benefit from this facility.
The RBI has also allowed banks to offer different interest rates on FCNR(B) deposits. However, these rates must be determined based on the deposit’s tenure and amount, adhering to the Reserve Bank’s guidelines on deposit interest rates.
Additionally, the central bank clarified that banks can continue to issue standard FCNR(B) deposit schemes without utilizing the swap facility. However, separate records must be maintained for such deposits.
The RBI has also clarified rules related to External Commercial Borrowing (ECB). According to the central bank, companies can raise ECB for any duration. However, the special swap facility will only apply to ECBs with an average maturity period of at least three years.
Furthermore, the swap period will align with the repayment period of the ECB, but the maximum limit will remain at five years.
To make foreign currency deposits more attractive, the RBI has exempted new FCNR(B) and NRE deposit amounts from mandatory reserve requirements like Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR). This will make it more profitable for banks to raise NRI deposits, allowing them to offer better interest rates to customers.
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