15 Jun RBI’s Reviving of FCNR(B) Swap Scheme again in 2026
This article covers “Daily Current Affairs”
SYLLABUS MAPPING : GS Paper 3 : Economy
FOR PRELIMS : FCNR(B) , NRI Deposits , BoP , Forex Reserve Buffer
FOR MAINS : India’s Balance of Payments deficit widened six-fold to $30.8 billion in 2025–26. Examine the causes of this deterioration and evaluate the suite of measures announced by RBI — including the FCNR(B) swap facility — to address external sector vulnerabilities. What structural reforms are necessary to reduce India’s chronic current account deficit?
Why in the News
On June 5, 2026, the RBI Governor announced a special swap facility for banks to mobilise fresh FCNR(B) — Foreign Currency Non-Resident (Bank) deposits from NRIs. Under this scheme, RBI absorbs the currency hedging cost of 3–3.5% per annum for banks, enabling them to offer NRIs up to 6–7% on dollar deposits — tax-free in India. The window is open until September 30, 2026, with analysts projecting $40–60 billion in inflows. The scheme mirrors — and improves upon — the controversial 2013 FCNR(B) swap launched by then RBI Governor Raghuram Rajan, which attracted $34 billion but was labelled “terrible” by the authorities themselves. The Indian Express editorial (June 13, 2026) by Siddharth Upasani analyses why the 2026 version is far more potent — offering a 3.5% subsidy vs 2013’s implicit subsidy — and estimates total cost at $125 million per year embedded in the BoP package.
Key Statistics
$34B
Attracted in 2013
FCNR(B) scheme
FCNR(B) scheme
$40–60B
Projected 2026
inflows (analysts)
inflows (analysts)
3–3.5%
Hedging cost RBI
absorbs for banks
absorbs for banks
5.5–7%
Expected NRI USD
deposit rate
deposit rate
$125M
Annual hedging cost
to RBI (est. SBI)
to RBI (est. SBI)
What is an FCNR(B) Deposit? — Static Concept
| Parameter | Details |
|---|---|
| Full Form | Foreign Currency Non-Resident (Bank) Deposit |
| Who Can Open | NRIs, PIOs (Persons of Indian Origin), OCIs (Overseas Citizens of India) |
| Currency | USD, GBP, EUR, CAD, AUD, JPY — held & repaid in the same foreign currency |
| Tenure | Minimum 1 year, maximum 5 years |
| Currency Risk | Zero for depositor — principal & interest returned in original foreign currency |
| Tax in India | Fully exempt under Section 10(15)(iv)(fa) of the Income Tax Act, 1961 — no TDS |
| Repatriation | Fully repatriable under FEMA — no upper limit |
| Regulatory Authority | RBI (under FEMA, 1999) — Master Directions on NRI accounts |
| Key Difference from NRE | NRE FD is in rupees (currency risk to NRI); FCNR(B) is in foreign currency (no currency risk) |
| Premature Withdrawal | No interest if withdrawn before 1 year; interest at applicable rate after 1 year |
Why Banks Offered Low FCNR(B) Rates — The Hedging Cost Problem
NRI deposits $1,000 in FCNR(B) at Bank
→
Bank converts $ to ₹ to lend domestically
→
Bank must repay NRI in $ at maturity → currency mismatch risk
→
Bank buys currency hedge costing 3–3.5% p.a.
→
This cost passed to NRI as lower deposit rate (2–4%)
2026 Change: RBI absorbs the 3–3.5% hedging cost via a swap facility — banks can now offer 5.5–7% on USD deposits. RBI’s total cost is estimated at $125 million per year (SBI Research) — a small price for potentially $40–60 billion in foreign inflows that stabilise the rupee and boost forex reserves.
Current FCNR(B) USD Rates — Major Banks
| Tenure | SBI | HDFC Bank | ICICI Bank | Axis Bank |
|---|---|---|---|---|
| 1 yr to < 2 yrs | 4.40%* | 3.95% | 3.85% | 4.00% |
| 2 yrs to < 3 yrs | 3.55% | 3.60% | 3.35% | 3.50% |
| 3 yrs to < 4 yrs | 3.35% | 3.65%* | 3.00% | 3.25% |
| 4 yrs to 5 yrs | 2.95% | 3.40% | 2.90% | 2.95% |
* Best in category. Note: Banks have not yet fully passed on RBI’s subsidy. Emkay projects 6.0–6.6% post-revision (Aug–Sept 2026).
2013 FCNR(B) vs 2026 FCNR(B) — Comparison
| Parameter | 2013 Scheme (Rajan Era) | 2026 Scheme (Current) |
|---|---|---|
| Context | Taper tantrum — US Fed reducing QE; rupee crashed to ₹68/$ | Sustained rupee depreciation pressure; BoP deficit ₹30.8B (6× increase) |
| Subsidy | Implicit swap — RBI bore partial hedging cost | Explicit 3–3.5% full hedging cost absorbed by RBI |
| NRI Rate Offered | ~3.5% on USD deposits | 5.5–7% on USD deposits (post full revision) |
| Inflows Attracted | $34 billion — 12% of forex reserves at time | Projected $40–60 billion |
| Duration | ~3 months window | Window: June 8 to September 30, 2026 |
| Cost to RBI | Significant — later criticised as “terrible idea” | Estimated $125 million/year — modest vs inflow benefit |
| FCNR(B) as % of GDP | ~1.8% of GDP | Could reach ~1.2–1.5% of GDP |
| Redemption Pressure | ₹26 billion maturity in 2016 caused rupee stress | Staggered maturity design to reduce redemption cliff risk |
Timeline — FCNR(B) & India’s NRI Deposit History
1975
India introduces FCNR(A) — Foreign Currency Non-Resident (Account) scheme to attract NRI dollars after 1971 war economic strain.
1993
FCNR(B) replaces FCNR(A) — banks, not RBI, now bear the currency risk. Marks shift to market-based NRI deposit regime.
1999
FEMA (Foreign Exchange Management Act) replaces FERA — liberalises NRI remittances; FCNR(B) placed under FEMA framework.
Aug 2013
Taper Tantrum: Rupee crashes to ₹68/$. Raghuram Rajan launches FCNR(B) swap scheme — $34 billion raised in 60 days. Rupee stabilises.
2016
2013 FCNR(B) deposits mature — RBI manages $26 billion redemption causing temporary forex reserve stress. Scheme later called “terrible” by authorities.
2024–25
India’s Balance of Payments deficit widens 6× to $30.8 billion. Rupee under sustained depreciation pressure; FPI outflows accelerate.
Apr 2025
RBI announces intention to revive FCNR(B) swap — absorb full hedging cost for banks until Sept 30, 2026.
June 5, 2026
RBI Governor formally operationalises scheme. Banks can now access RBI’s swap window for eligible FCNR(B) deposits. Rates expected to rise to 5.5–7%.
Sept 30, 2026
Deadline: No fresh FCNR(B) deposits under the scheme after this date. Existing deposits unaffected — rate locked for full tenure.
Types of NRI Deposits — Comparison
| Feature | NRE FD | NRO FD | FCNR(B) |
|---|---|---|---|
| Currency | Indian Rupee (INR) | Indian Rupee (INR) | Foreign currency (USD, GBP etc.) |
| Currency Risk | Yes — rupee depreciation erodes return | Yes — rupee risk | None — repaid in original currency |
| Tax in India | Tax-free (interest) | Taxable (30% TDS) | Tax-free under Sec 10(15)(iv)(fa) |
| Repatriation | Fully repatriable | Restricted ($1M/year) | Fully repatriable — no limit |
| Typical Rate (2026) | 6.25–6.45% (INR) | 6–7% (INR) | 5.5–7% (USD) post-revision |
| Source of Funds | Foreign earnings only | India-source income too | Foreign earnings only |
Institutional & Legal Framework
| Act / Body | Role in FCNR(B) Scheme |
|---|---|
| RBI (Reserve Bank of India) | Regulates NRI deposits under FEMA; operates the swap window; sets interest rate ceilings; manages India’s forex reserves |
| FEMA, 1999 | Foreign Exchange Management Act — governs all NRI accounts, repatriation rights, and capital account transactions |
| Income Tax Act, 1961 — Sec 10(15)(iv)(fa) | Exempts FCNR(B) interest from Indian income tax — key incentive for NRIs; no TDS deducted |
| SEBI | Regulates NRI equity investments (FPI route); complementary to NRI deposit framework |
| Commercial Banks (SBI, HDFC, ICICI, Axis) | Accept FCNR(B) deposits from NRIs; access RBI’s swap window for hedging subsidy; revise interest rates |
| RBI Master Directions on NRI Accounts | Defines eligibility (NRI/PIO/OCI), permitted currencies, joint account rules, premature withdrawal norms |
| BoP Framework (IMF Guidelines) | FCNR(B) inflows counted under Capital Account (Banking Capital) — directly improves India’s Balance of Payments position |
Why India Needs Foreign Inflows Now — Macro Context
BoP Crisis Signal
India’s BoP deficit widened 6× to $30.8 billion in 2025–26 — worst in recent years
Rupee Pressure
Sustained depreciation pressure; FPI outflows accelerated in 2024–25 amid US rate differentials
Forex Reserve Buffer
$34B in 2013 = 12% of total forex reserves; 2026 target could similarly rebuild the cushion
NRI Remittance Base
India is world’s largest remittance receiver (~$125B/yr); FCNR taps a different, savings-oriented NRI segment
Critical Perspectives
🟢 Arguments in Favour
- Low cost vs high gain: $125M/year hedging cost for potentially $40–60B inflow — strong cost-benefit ratio
- Rupee stabilisation — dollar inflows reduce depreciation pressure without direct forex market intervention
- 2013 precedent: $34B attracted in 60 days; rupee stabilised rapidly; confidence restored
- Win for NRI savers — 6–7% tax-free USD return far exceeds global USD deposit rates (US HY savings 4–5%)
- Banks with strong NRI franchise (SBI, HDFC, ICICI) benefit through fee income & deposit growth
- Complements RBI’s other BoP measures — holistic approach rather than sole reliance on rate hikes
🔴 Concerns & Risks
- Redemption cliff risk: 2013 maturity in 2016 created $26B pressure in one year — RBI must stagger 2026 maturities carefully
- Fiscal cost: RBI’s hedging subsidy is a quasi-fiscal transfer — not free money; BoP gain shifts to future liability
- Moral hazard: Repeated use of “emergency” NRI deposit schemes may signal weak BoP management
- Rate revision lag — banks slow to transmit RBI’s subsidy; NRIs may miss the window benefit
- US-based NRIs face FBAR/FATCA obligations — compliance burden reduces net return attractiveness
- Does not address structural CAD problem — a band-aid on a systemic current account deficit
Way Forward
- RBI should design staggered maturity structures for 2026 FCNR(B) deposits — mandate 3–5 year tenures to avoid a repeat of the 2016 redemption cliff that stressed forex reserves after the 2013 scheme.
- Banks must rapidly transmit the hedging subsidy to NRIs through revised rates — RBI should set a clear timeline (by July 31, 2026) for banks to publish revised FCNR(B) rates of at least 5.5% on USD.
- India should use the forex reserve cushion built via FCNR(B) to reduce current account deficit structurally — through export promotion (PLI schemes, DGFT reforms) and substituting oil/gold imports.
- Simplify FBAR/FATCA compliance for US-based NRIs through India–US bilateral engagement — reducing compliance friction will unlock a large untapped NRI savings pool from the US diaspora.
- Develop a permanent NRI Financial Inclusion Framework — beyond emergency deposit drives, create incentives for NRI equity, bond, and infrastructure investment through consistent, predictable policy.
- India should pursue rupee internationalisation as a long-term BoP strategy — reducing dollar dependence through trade settlement in INR (already initiated with some nations) will reduce hedging costs structurally.
Prelims MCQ
PRELIMS — GS (Indian Economy)
With reference to FCNR(B) deposits in India, consider the following statements:
1. FCNR(B) deposits are denominated in Indian rupees and converted to foreign currency at maturity.
2. Interest earned on FCNR(B) deposits is fully exempt from income tax in India under the Income Tax Act, 1961.
3. FCNR(B) deposits can be opened only by Non-Resident Indians (NRIs) and not by Persons of Indian Origin (PIOs) or Overseas Citizens of India (OCIs).
4. Under the 2026 RBI scheme, the Reserve Bank absorbs the currency hedging cost for banks to enable them to offer higher rates on FCNR(B) deposits.
1. FCNR(B) deposits are denominated in Indian rupees and converted to foreign currency at maturity.
2. Interest earned on FCNR(B) deposits is fully exempt from income tax in India under the Income Tax Act, 1961.
3. FCNR(B) deposits can be opened only by Non-Resident Indians (NRIs) and not by Persons of Indian Origin (PIOs) or Overseas Citizens of India (OCIs).
4. Under the 2026 RBI scheme, the Reserve Bank absorbs the currency hedging cost for banks to enable them to offer higher rates on FCNR(B) deposits.
Correct Answer: (B) — Statements 2 and 4 only
Statement 1 — Incorrect: FCNR(B) deposits are denominated and held entirely in foreign currency (USD, GBP, EUR, etc.). There is NO rupee conversion at any stage — this is the key feature distinguishing FCNR(B) from NRE/NRO FDs. Principal and interest are both repaid in the original foreign currency.
Statement 2 — Correct: Interest on FCNR(B) deposits is fully exempt under Section 10(15)(iv)(fa) of the Income Tax Act, 1961 — no TDS is deducted, and no filing is required in India for this income alone. A classic UPSC favourite.
Statement 3 — Incorrect: FCNR(B) deposits can be opened by NRIs, PIOs, and OCIs — all three categories are eligible. OCIs (who hold a foreign passport) are fully eligible even without an Indian passport. This is a common trap.
Statement 4 — Correct: Under the 2026 RBI scheme (circular dated June 5, 2026), RBI absorbs the currency hedging cost of 3–3.5% per annum for banks via a swap facility, enabling banks to offer significantly higher dollar deposit rates to NRIs.
Statement 2 — Correct: Interest on FCNR(B) deposits is fully exempt under Section 10(15)(iv)(fa) of the Income Tax Act, 1961 — no TDS is deducted, and no filing is required in India for this income alone. A classic UPSC favourite.
Statement 3 — Incorrect: FCNR(B) deposits can be opened by NRIs, PIOs, and OCIs — all three categories are eligible. OCIs (who hold a foreign passport) are fully eligible even without an Indian passport. This is a common trap.
Statement 4 — Correct: Under the 2026 RBI scheme (circular dated June 5, 2026), RBI absorbs the currency hedging cost of 3–3.5% per annum for banks via a swap facility, enabling banks to offer significantly higher dollar deposit rates to NRIs.
Mains Questions
GS-3 | Indian Economy — Money & Banking
“India’s revival of the FCNR(B) swap scheme in 2026 addresses a short-term Balance of Payments stress but raises questions about the structural health of India’s external sector.” Critically analyse the FCNR(B) mechanism, its macroeconomic implications, and the risks of over-reliance on NRI deposit drives for currency stabilisation.
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