The Reserve Bank of India (RBI) on Monday launched a US dollar-rupee forex swap facility for fresh FCNR(B) deposits with maturities of three to five years and said banks would be free to price such deposits according to their internal policies, subject to existing regulatory ceilings.
The facility will be available to authorised dealer category-I banks for eligible FCNR(B) deposits mobilised in any freely convertible currency, with swaps to be undertaken in US dollars.
According to a circular issued by the RBI, the swap facility will be available for fresh FCNR(B) deposits mobilised in any freely convertible currency, including deposits renewed upon maturity, for a minimum tenor of three years and a maximum tenor of five years. However, the swap facility with the RBI will be available only in US dollars.
The tenor of the swap will align with the tenor of the underlying deposits.
For FCNR(B) deposits mobilised in permissible foreign currencies other than the US dollar, banks may determine the equivalent US dollar amount eligible for swapping by converting the deposits at prevailing market rates on the day of the swap transaction. The RBI said banks should follow a consistent policy for such conversions and maintain proper documentation and audit trails.
A bank can avail of the swap facility only once a week. During any week, the maximum amount eligible for swapping will equal all eligible FCNR(B) deposits mobilised in equivalent US dollar terms during the preceding week or weeks for which the facility has not been availed of earlier.
Under the arrangement, banks can sell US dollars to the RBI in multiples of $1 million and simultaneously agree to buy back the same amount of US dollars at the end of the swap period. In the first leg of the transaction, the bank will sell US dollars to the RBI at the FBIL Reference Rate, with settlement taking place on a spot basis. The second leg of the swap will take place at the same rate as the first leg. The RBI said the swap would be undertaken at par.
The underlying FCNR(B) deposits will have a one-year lock-in period. Banks may, at their discretion, allow premature withdrawal of such deposits after one year in accordance with their internal policies. However, swaps undertaken with the RBI cannot be cancelled.
The swap facility comes into effect immediately and will remain open until October 16, 2026, for deposits mobilised between the date of the circular and September 30, 2026.
As part of measures to attract foreign capital, the RBI last week said authorised dealer banks raising fresh three- to five-year foreign currency non-resident (bank), or FCNR(B), deposits would be eligible for a facility under which the central bank would bear the full hedging cost until September 30.
The move is expected to enable banks to offer non-resident Indians (NRIs) deposit rates that are 150-200 basis points higher than current levels. While some analysts estimate the scheme could attract inflows exceeding the $34 billion mobilised under a similar FCNR(B) swap scheme in 2013, others have cautioned that the impact may not be as pronounced this time.
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