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India has recently experienced increased volatility in global financial markets, resulting in pressure on capital flows and the exchange rate. In order to strengthen India’s foreign exchange reserves, improve dollar liquidity in the banking system, and to reduce pressure on the Indian Rupee, the Reserve Bank of India (RBI), in consultation with the Government of India, announced a special package of measures on 8th June 2026 to attract foreign currency deposits from Non-Resident Indians (NRIs).
The centerpiece of the package is a special FCNR (B) Deposit Swap Window, under which the RBI bears the foreign exchange hedging cost for eligible deposits mobilized by banks. The scheme introduced a US Dollar-Rupee Forex Swap Facility for fresh FCNR (B) deposits, mobilized for a minimum tenor of three years and maximum tenor of five years. The scheme is expected to encourage NRIs to remit a larger portion of their overseas savings to India by enabling banks to offer significantly higher interest rates than before. The initiative resembles the successful FCNR (B) mobilization program introduced in 2013, which generated substantial foreign currency inflows during a period of market stress.
1. What is an FCNR (B) Deposit?
A Foreign Currency Non-Resident (Bank) [FCNR(B)] Deposit is a fixed deposit maintained by NRIs in designated foreign currencies such as US Dollar (USD), Pound Sterling (GBP), Euro (EUR), Japanese Yen (JPY), Australian Dollar (AUD), Canadian Dollar (CAD), etc. Unlike NRE fixed deposits, FCNR (B) deposits remain denominated in foreign currency throughout their tenure. Consequently, the depositor does not bear the risk arising from fluctuations in the Indian Rupee. Under this scheme, both the principal and the interest are fully repatriable.
2. Salient Features of the Scheme
A. RBI Forex Swap Facility
The RBI has introduced a special swap window under which authorized banks can swap eligible US dollar FCNR (B) deposits with the RBI at concessional terms. As per the circular, the swap facility will be available to the AD Category I banks for fresh FCNR(B) deposits mobilized in any freely convertible currency, including deposits that are renewed upon maturity, for a minimum tenor of three years and maximum tenor of five years. However, the swap facility with RBI will be available in US Dollars only. For FCNR (B) deposits mobilized in permissible foreign currencies other than US Dollar, banks may arrive at the equivalent US Dollar amount eligible to be swapped by converting the same at the prevailing market rates on the day of the swap deal This substantially reduces banks’ hedging costs, allowing them to offer more attractive interest rates to depositors.
B. Scheme Period
The special facility applies to fresh or renewed eligible FCNR (B) deposits mobilized from 8 June 2026 Up to 30 September 2026. As per the RBI Circular, the Swap Facility comes into effect immediately and will remain open up to October 16, 2026 for deposits mobilized between the date of this circular and September 30, 2026. The concessional swap facility is available only for deposits having a maturity of minimum three years to maximum five years. To ensure stable foreign currency inflows, deposits under the special arrangement cannot be prematurely withdrawn during the first year. Thereafter, premature withdrawal is subject to the bank’s terms and RBI guidelines.
C. Higher Interest Rates
Banks would be free to price these deposits as per their internal policy, but within the overall ceiling as per the extant guidelines issued by RBI. Since the RBI absorbs the foreign exchange hedging cost, banks are able to offer substantially improved returns. Many banks have revised their USD FCNR (B) rates to around 6%–7.5%, depending on the bank and tenure. To improve the attractiveness of the scheme, the RBI has also permitted banks to extend loans to eligible non-residents against FCNR (B) deposits, issue Standby Letters of Credit (SBLCs) backed by such deposits and provide greater operational flexibility for financing arrangements linked to these deposits.
3. Benefits for NRIs
The scheme offers several advantages such as Protection against Currency Risk since deposits remain in foreign currency. Both principal and interest are insulated from depreciation of the Indian Rupee. Reduced hedging costs allow banks to offer higher interest rates than were previously feasible. Principal and interest can be freely remitted abroad. Since deposits are maintained with authorized Indian banks regulated by the RBI, these deposits are comparatively safe.
4. Points to Consider Before Investing
NRIs should compare interest rates across authorized banks, consider the mandatory one-year lock-in, review premature withdrawal provisions, understand tax implications in the country of residence, as interest may be taxable outside India and assess overall financial objectives and liquidity requirements. Interest earned on FCNR (B) deposits is generally exempt from income tax in India for eligible non-residents under the Income-tax Act, subject to applicable conditions.
5. Conclusion
The 2026 FCNR (B) Deposit Scheme represents one of the most significant measures taken in recent years to mobilize foreign currency resources from the global Indian Diaspora. By substantially reducing hedging costs through the RBI’s special swap window, Indian banks are in a position to offer highly competitive interest rates while preserving the traditional advantages of FCNR (B) deposits, including protection against exchange-rate risk and full repatriability. For eligible NRIs seeking stable foreign currency returns with the security of the Indian banking system, this limited-period scheme presents an attractive investment opportunity. From India’s perspective, it is a timely policy initiative that strengthens foreign exchange reserves, enhances financial stability, and supports confidence in the external sector.
Disclaimer: The opinions and views expressed in this article/column are those of the author(s) and do not necessarily reflect the views or positions of South Asian Herald.
