The Reserve Bank of India (RBI) has opened the dollar tap by taking on the currency risk itself to attract overseas funds, while nudging state-owned borrowers to explore cheaper financing abroad. Under the new measures, RBI will not charge any premium for swapping dollars raised through Foreign Currency Non-Resident (FCNR(B)) deposits, effectively absorbing the entire forex risk and allowing banks to offer higher returns to Non-Resident Indians (NRIs).
FCNR(B) Deposit Benefits
In addition to absorbing forex risk, FCNR(B) deposits with tenures of three to five years will be exempt from Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR) requirements. This lowers the cost of mobilizing such funds for banks. A higher return on FCNR-B deposits creates an arbitrage opportunity for NRIs: borrow money from banks abroad, park it in India, and pocket the difference in interest rates.
ECB Swap Facility
For External Commercial Borrowings (ECBs), the central bank has set a swap cost of 1.5% per annum, making overseas loans attractive for top-rated Public Sector Undertakings (PSUs) compared with domestic funding. Bankers estimate inflows of around $50 billion across the two schemes combined.
The latest window also sidesteps a regulatory constraint that had tightened earlier this year. Dollar swap deals with RBI will be kept outside the limits on net open position, a move aimed at encouraging participation without running into balance sheet caps that were introduced to curb speculation in the forex market.
Timelines and Scope
The FCNR(B) swap window will remain open until October 16, 2026, for deposits mobilized up to September 30, 2026. The ECB and Other Foreign Currency Borrowings (OFCB) swap facility will run until January 15, 2027, for drawdowns up to December 31, 2026.
RBI Governor Sanjay Malhotra on Friday stated that there is no target or cap for mobilization under the schemes. He clarified that the concessional swap window for ECBs is limited to PSUs. 'Benefits to PSUs are passed on to the general public because they are catering more to utilities and infrastructure. If we extend to the private sector, the benefits are not as widely dispersed,' he said.
Pricing and Balance Sheet Comfort
The pricing mechanics underline the policy intent. RBI will charge a fixed premium of 1.5% per annum, compounded semi-annually, on swaps linked to ECBs and OFCBs. Authorised Dealer Category-I banks will sell dollars to RBI at the prevailing FBIL reference rate on a spot basis and, at maturity, return rupee funds along with the accumulated premium to buy back the dollars.
RBI has also given banks balance sheet comfort by allowing them to exclude swap positions arising from these transactions while computing net open position. According to the circular, this ensures that the forex exposures created by these multi-year swaps do not eat into regulatory limits under FEMA guidelines. The swaps will be non-cancellable, and FCNR(B) deposits will carry a one-year lock-in on premature withdrawal.
