RBI’s FCNR(B) Swap Window Returns, but the 2013 Spread Has Halved

The Reserve Bank of India reopened a special FCNR(B) swap window on June 5, 2026, asking banks to mobilise fresh foreign-currency deposits from non-resident Indians and swap those dollars with the central bank. The RBI will absorb the hedging cost that normally makes such deposits uneconomic for lenders, and will exempt the deposits from cash reserve and statutory liquidity requirements. The scheme reopens a playbook last used during the 2013 taper tantrum, when banks mobilised $34 billion in a few months and helped pull the rupee back from a record low.

Whether the same scale of inflows can repeat is the open question. India is asking for the same kind of dollars, but the macro backdrop is sharply different: US Treasury yields sit around 4.5%, and the spread between Indian and US three-year yields has compressed from more than 8 percentage points in 2013 to roughly 2.4 percentage points now. The RBI’s package, announced at the June 5 monetary policy meeting that held the repo rate at 5.25%, was bigger than most economists had expected. The most aggressive estimates for the FCNR(B) route now go as high as $60 billion, but base-case forecasts from major banks land closer to $20 billion.

The FCNR(B) Swap Window the RBI Just Reopened

The FCNR(B) facility, announced in the June 5 monetary policy statement and operationalised in a circular on June 8, lets authorised dealer banks raise fresh Foreign Currency Non-Resident (Bank) deposits in any freely convertible currency and swap the dollars with the RBI. Eligible deposits must carry a tenor of three to five years, and the underlying accounts will have a one-year lock-in. Banks may permit premature withdrawal after that year under their own internal policies, but the swaps themselves cannot be cancelled. The deposit window closes on September 30, 2026, and the swap facility stays open until October 16, 2026, as detailed in the operational circular issued on June 8.

Deposits can be raised in US dollars, pound sterling, euros, Japanese yen, Australian dollars or Canadian dollars, but the RBI swap itself is available only in US dollars. The RBI’s operational circular requires banks to sell US dollars in multiples of $1 million at the FBIL Reference Rate, with a bank able to access the swap facility only once a week. Both legs of the swap settle at the same rate, and the entire economic effect of the hedging subsidy is to give banks an extra cushion they can pass on as higher deposit rates.

The scheme targets a specific and shrinking corner of the NRI deposit market. FCNR(B) deposit inflows collapsed to $946 million in FY26 from $7.08 billion in FY25, a fall of 86%, while total NRI deposits outstanding still rose to $165.65 billion at the end of March 2026. The collapse came as the regulatory incentives that had supported the channel expired and competing domestic rates sucked money into rupee-denominated NRE and NRO accounts instead. Outstanding FCNR(B) balances stood at $33.8 billion at the end of FY26. With the swap now live, banks have until September 30 to try to rebuild that base.

Why the RBI Pulled This Lever Now

The June 5 package was a coordinated attempt to defend a rupee that has been sliding against a firmer dollar. Higher oil prices, persistent portfolio outflows, and gross FDI repatriation have all weighed on the external balance, with the central bank’s annual report projecting FY27 growth of 6.9% alongside that pressure. MUFG Research, in its June 8 note, estimated a balance of payments deficit of around $50 billion for FY2026/27 that needs to be plugged, and flagged the RBI’s expansion of the Fully Accessible Route for foreign investment in government securities as the structural reform of the package. The context for that move, set at the rate-setting panel’s June 3-5 meeting, was a rate hold with a clear external-side tilt.

The FCNR(B) swap was one of five measures announced at the same meeting, all aimed at attracting foreign currency into Indian hands. The others, in summary:

1. The RBI expanded the Fully Accessible Route to include all new issuances of 15-, 30- and 40-year government securities.
2. The government removed capital gains and interest income taxes for foreign portfolio investors, retrospectively from April 1, 2026, while expanding the list of government securities available to them.
3. Investment limits for NRIs in equity instruments without SEBI registration were increased.
4. A concessional FX swap facility was opened for external commercial borrowings raised by public sector undertakings, available until September 30, 2026.
5. The RBI restored the time for realisation of USD export proceeds to nine months, from the temporary 15-month extension granted earlier.

The FCNR(B) measure was the one with the clearest historical precedent. The combination of the swap and the CRR/SLR exemption is also the one with the highest near-term cost to the RBI, since absorbing the forward premium runs at around 2.5% per year for a 3-5 year deposit.

The immediate market reaction was a modest relief rally in the rupee. MUFG Research said it was “now somewhat less negative on the Indian Rupee” and tentatively projected USD/INR at 94.00 by the September quarter before rebounding towards 96.00 in the next calendar year. The base case in that note was for around $40 billion of inflows from the full June 5 package, and “more so if India were to be included in the Bloomberg Global Agg Index.”

How the Swap Eats the Hedging Cost Banks Cannot Carry

The economics of FCNR(B) deposits turn on a number most depositors never see. When a bank accepts a US dollar deposit at, say, 5%, it must deploy those dollars into rupee assets and simultaneously buy dollars forward to repay the NRI at maturity in the original currency. That forward cover currently costs around 3% per year for a 3-5 year tenor, on top of the interest paid to the depositor. Without help, the bank’s all-in cost of an FCNR(B) deposit is therefore in the high single digits, well above the rate it would pay on a domestic rupee deposit.

The RBI’s intervention flips that equation. By absorbing the full FX hedging cost and exempting the deposits from CRR and SLR, the central bank removes the two biggest drags on the FCNR(B) economics in one move. CRR and SLR together can add well over a percentage point to a bank’s effective cost, since reserves parked with the RBI earn nothing. With both costs removed, a deposit paying 5.5% to an NRI becomes roughly competitive for the bank with a 6.5% domestic deposit, and the NRI keeps full currency protection. The Indian Express explainer on the scheme notes that FCNR(B) deposits offer tax-free interest in India for qualifying non-resident depositors, a treatment preserved from the 2013 framework.

The scheme is expected to be very successful in attracting dollar inflows as the RBI has absorbed the full hedge cost, which is more than 3%. Moreover, the deposits are CRR and SLR exempt. This will make it lucrative for both NRIs as well as banks.

Gaura Sen Gupta, chief economist at IDFC FIRST Bank, said that to Mint on June 9, 2026. Anand Mihir, partner and financial services consulting leader at EY India, made the same point in fewer words in the same coverage: “By offering a predetermined swap rate and easing CRR and SLR requirements, it improves the economics of foreign currency deposits, reduces hedging uncertainty, and enables banks to price more competitively.”

Lakshmanan V, group president and head of treasury at Federal Bank, gave the practical effect in rate terms. “The key mechanics is what return an NRI would get by putting money into FCNR deposits under this scheme compared to their contemporary investments. Because of the swap window, banks are likely to price FCNRs at about 6%, compared to maybe 4% that existed earlier. That 2% differential is significantly remunerative,” he told Mint. Bankers quoted by the Indian Express and Moneycontrol pointed to the same 6% to 6.5% range as the realistic landing zone once hedging is fully absorbed.

2013’s $34 Billion Haul and the Spread That Powered It

The reference point for the current scheme is September 2013, when the US Federal Reserve’s signal that it would taper its bond-buying programme triggered capital outflows from emerging markets and pushed the rupee to a record low. The RBI, then under new governor Raghuram Rajan, responded with two swap windows that together brought in $34 billion in foreign currency. The FCNR(B) leg alone delivered $26 billion, with the rest coming through a separate facility for overseas borrowings. HDFC Bank was the single largest mobiliser at $3.4 billion, followed by SBI with $3.07 billion and ICICI Bank with $2 billion.

The economics worked for two reasons. First, the RBI’s swap subsidy was generous: a fixed 3.5% annual cost, well below prevailing FX swap rates, which effectively handed banks a roughly 3% discount. Second, the rate environment was extreme: Indian three-year government bond yields were above 9%, while comparable US rates were below 1%, giving a spread of more than 8 percentage points. Banks could borrow dollars cheaply from NRIs, deploy the proceeds at high Indian rates, and pocket the spread, with the RBI absorbing the currency risk. The tax-free interest treatment for qualifying non-resident depositors, a feature of FCNR(B) deposits since the scheme’s inception, was preserved in the 2026 version.

The 2013 Spread Is Roughly Half Its Size in 2026

The 2026 rate backdrop looks much narrower. Indian three-year government bond yields are in the mid-6% range, while US three-year yields are around 4%. Jefferies, in a note cited by Moneycontrol, put the India-US three-year spread at roughly 2.4 percentage points, down from more than 8 percentage points in 2013. The compression is similar at the five-year and ten-year maturities, and the constraint is the single biggest reason the 2026 scheme enters with a lower ceiling on inflows.

The narrower spread is the single biggest reason the 2026 scheme is unlikely to match 2013 in raw dollars. MUFG Research’s base case, published on June 8, was $20 billion of inflows from the FCNR(B) route, “lower than what we saw in 2013 in our view based on our preliminary assessment.” Gaura Sen Gupta of IDFC FIRST Bank gave a higher range of $40 billion to $60 billion, while bankers quoted by the Indian Express said the scheme could pull in $50 billion to $70 billion if banks priced deposits correctly. SBI Research expects $40 billion to $45 billion. Barclays, in a separate note, called $25 billion to $30 billion a reasonable base case “given tighter global liquidity conditions.” Foreign and domestic bank research together cluster around $20 billion to $30 billion (foreign) and over $40 billion (domestic).

Comparison with US deposit alternatives is now tighter. SBI’s US branch currently offers around 3.85% on three- to five-year US dollar CDs in the United States, while Merrick Bank pays 4.20% APY on a three-year CD and Morgan Stanley around 4.30% APY on a five-year CD. As one nationalised bank official told the Indian Express: “Banks need to more than match the interest rates offered by foreign banks in various jurisdictions like the US. Otherwise, funds won’t come.” A senior bank analyst separately suggested Indian FCNR(B) rates would need to climb at least 100 basis points to remain competitive.

The narrower spread also rewrites the leverage math that drove the 2013 carry trade. A 5% FCNR(B) return combined with 1% borrowing costs generated 45% to 85% annual returns on investor equity in 2013, depending on leverage. The same structure at 6% FCNR(B) with 5% offshore borrowing costs does not come close to those returns.

The Leverage Question Banks Are Quietly Asking

The second-order question is whether the RBI will allow the leverage structures that amplified 2013 inflows. Under the playbook then in use, a non-resident Indian could contribute a small amount of capital and borrow the rest from an offshore lender, with an Indian bank issuing a standby letter of credit to reduce the lender’s risk. The borrowed money and the depositor’s own capital were then parked as FCNR(B) deposits. The structure, in practice:

• $100,000 of equity at 10-20x leverage = a $1.1 million FCNR(B) deposit
• $100,000 of equity at 15x leverage = a $1.6 million deposit
• $100,000 of equity at 20x leverage = over $2 million on the books

At a 5% FCNR(B) return and 1% offshore borrowing cost, those equity cheques could earn 45% to 85% per year. Jefferies analysts Prakhar Sharma and Vinayak Agarwal, in a note cited by Moneycontrol, called this the engine of the 2013 scheme.

The success of the 2013 FCNR-B deposit scheme was due to the ability to leverage personal funds by 10-20x. The RBI subsequently asked banks to refrain from offering such leverage, making regulatory clarity critical this time around.

Prakhar Sharma and Vinayak Agarwal, analysts at Jefferies, wrote in a June 9 note carried by Moneycontrol. No announcement from the RBI has yet clarified whether the 2013 leverage playbook is back in play. Multiple bankers, quoted anonymously by Moneycontrol, said the question was the one that would determine whether the $20 billion or the $60 billion scenario plays out. If leverage is allowed, the FCNR(B) scheme could match 2013; if not, it ends up as a moderately attractive dollar deposit product at a moment when global investors have plenty of alternatives, and the broader question of how the central bank reconciles a 5.25% repo rate with a record-low rupee, tracked in the rate-setting panel’s recent policy debate, remains open.

The First Batch of Bank Rates Has Already Moved

The first banks to publish new FCNR(B) rates under the scheme have already moved, and they have moved sharply. Effective June 10, 2026, AU Small Finance Bank raised its peak USD FCNR(B) rate to 7.10% from 5.15%, with 7% on 4-5 year deposits. HDFC Bank and Central Bank of India both set their USD FCNR(B) rates at 6.00% on 3-5 year maturities. Karur Vysya Bank raised its peak rate to 7% on 3-5 year tenors, from 2.63% per annum. SBI launched a special “SBI Advantage FCNR(B) deposit” with a 6% peak on deposits above $1 million for 5-year tenor, after raising rates by up to 295 basis points across the curve. Most banks moved between 200 and 300 basis points in a single reprice.

MUFG Research expects the eventual quantum to land below the 2013 mark, even with leverage permitted. Its June 8 note forecast the package as a whole would deliver around $40 billion of inflows in FY2026/27, and “more than $50 billion of flows expected if India were to be included in the BBG Global Agg Index as an indirect result.” SBI Research expects $40 billion to $45 billion via the FCNR(B) route. With the FCNR(B) window open for less than four months and the swap facility for just over four, the next 90 days will set the test for a scheme whose 2013 predecessor ran on a spread no longer available to it.

Frequently Asked Questions

Who can open an FCNR(B) deposit under the new swap window?

NRIs, OCIs, and PIOs can open FCNR(B) deposits in any freely convertible currency. The 2026 swap window covers fresh 3-5 year deposits and renewed deposits, raised by authorised dealer banks between June 8 and September 30, 2026. Both principal and interest are repaid in the same foreign currency, so the NRI carries no rupee risk on the deposit itself.

What interest rate will NRIs earn on FCNR(B) deposits under this scheme?

It depends on the bank. As of June 10, 2026, AU Small Finance Bank offers 7.10% on 3-4 year USD deposits, HDFC Bank and Central Bank of India offer 6.00% on 3-5 year USD deposits, Karur Vysya Bank offers 7% on 3-5 year tenors, and SBI’s “Advantage FCNR(B)” scheme offers 6% on $1 million-plus, 5-year deposits. Most major banks have raised rates by 200 to 300 basis points, and the rates will continue to differ across banks and across the deposit-size threshold.

Is the interest on FCNR(B) deposits under this scheme taxable in India?

No. Interest earned on FCNR(B) deposits is exempt from income tax in India for depositors who qualify as non-resident under Indian tax law. The exemption is preserved in the 2026 scheme. The depositor still bears any tax obligation in their country of residence.

Can NRIs still use the leverage structures that amplified 2013 inflows?

The RBI has not, as of June 11, 2026, clarified whether the 10-20x leverage structures of 2013 are available under the new scheme. In 2013, the RBI subsequently asked banks to refrain from offering such leverage. Jefferies analysts Prakhar Sharma and Vinayak Agarwal wrote on June 9 that “regulatory clarity” on leverage is the variable that decides whether the $20 billion base case or the $60 billion high case plays out. NRIs should check with their bank before assuming a leverage structure is available.

When does the FCNR(B) swap window close?

The deposit window closes on September 30, 2026, and the swap facility stays open until October 16, 2026. The deposit carries a one-year lock-in; banks may permit premature withdrawal after that year under their internal policies, but the swap itself cannot be cancelled.