Robust accretion to FCNR-B deposits: RBI decides to pull the plug on concessional swap facility

The concessional swap facility will now be limited to FCNR(B) deposits with a 3‑5 year maturity that are raised by August 31, instead of the previous September 30 cutoff
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SUKREE SUKPLANG

The RBI announced it will end the temporary concessional swap facility that banks use to draw inflows into Foreign Currency Non‑Resident (Bank) / FCNR‑B deposits, after these deposits saw a strong increase of $52.30 billion from June 8 to August 13, 2026.

According to the central bank, the concessional swap facility will now apply solely to FCNR(B) deposits with a 3‑5 year maturity that are raised by August 31, 2026, instead of the previous September 30, 2026 deadline.

Likewise, banks can use the swaps tied to this facility — FCNR‑B deposits — with the RBI until September 11, 2026, rather than the earlier October 16, 2026 date.

Ending the concessional swap facility early may spur NRIs to park funds in FCNR‑B deposits quickly, so they don’t lose the chance to earn the elevated interest rates of roughly 6‑7.5 %.

After August 31, banks are expected to return to the previous interest rate of around 3 % on these deposits.

Bankers project that banks could attract an additional $15 billion in FCNR‑B deposits over the next two weeks, pushing total inflows via the temporary concessional swap facility to roughly $67 billion by the end of August 2026.

Encouraging uptake

The RBI stated that, given the strong uptake of the swap facility for FCNR(B) deposits and the resulting foreign‑exchange inflows, it has decided to restrict the FCNR(B) swap facility to deposits raised through August 31, 2026.

In addition, banks can access the swaps linked to this facility — FCNR(B) deposits — with the RBI until September 11, 2026. The arrangements for external commercial borrowings (ECBs) and overseas foreign currency borrowings (OFCBs) will remain available through December 31, 2026, unchanged.

Regarding the early termination of the concessional swap facility for FCNR‑B deposits, Madan Sabnavis, Chief Economist at Bank of Baroda, noted that the RBI likely aimed for a specific inflow target and appears to have reached it.

V Rama Chandra Reddy, Head of Treasury at Karur Vysya Bank, commented that the premature closing of the FCNR window seems more like a fine‑tuning measure than a shift in policy.

“With inflows already surpassing $52 billion, the RBI seems to have met its mobilization goal and is now turning its attention from drawing in funds to managing liquidity and balance‑sheet effects. This measured step aims to prevent over‑stimulating additional inflows while keeping sight on currency stability and lasting liquidity,” he said.

An economist at a private‑sector bank remarked that, given the robust FCNR‑B inflows, the RBI might be facing a scenario where it feels it no longer needs such large amounts.

Additional liquidity

Moreover, as the swap activity increases, a substantial amount of rupee liquidity will flow into the system. In effect, $52 billion of FCNR‑B deposits translates to roughly ₹5 lakh crore of liquidity being injected into the banking sector.

The economist noted that not all of this liquidity can be channeled into loans, so it will need to be withdrawn via open‑market operations involving the sale of government securities.

In addition to FCNR‑B deposits, the amounts raised through offshore foreign currency borrowings by banks and external commercial borrowings by public‑sector enterprises under the concessional swap facility reached $2.805 billion and $1.741 billion, respectively.

Published on August 14, 2026