FCNR(B) Deposits and RBI's Special Forex Swap Window
Economy · Tuesday, 18 August 2026
The RBI advanced the deadline for fresh FCNR(B) deposits to qualify for its special USD–INR forex swap window to August 31, 2026. FCNR(B) accounts are foreign-currency term deposits held by NRIs and OCIs with Indian banks, offering zero exchange risk, full tax exemption and complete repatriability.
Quick highlights
- RBI advanced the deadline for fresh FCNR(B) deposits to qualify for its special USD–INR swap window to August 31, 2026.
- FCNR(B) = foreign-currency term deposits (1–5 year tenors) held by NRIs and OCIs with authorized Indian banks.
- Funds remain in foreign currency (e.g., USD, GBP, EUR, JPY, CAD, AUD), eliminating exchange-rate risk for depositors — unlike rupee-denominated NRE/NRO accounts.
- Original FCNR scheme launched in 1975 (exchange risk borne by RBI/Government); revised FCNR(B) launched May 1993 with banks bearing forex exposure.
- Governed by FEMA, 1999 and RBI Master Directions; interest is fully exempt from Indian income and wealth tax, and funds are freely repatriable.
- Under the swap window, banks sell forex to RBI at spot and buy it back at par via forward contract, eliminating hedging costs.
Context
The Reserve Bank of India advanced the deadline for fresh Foreign Currency Non-Resident (Bank) [FCNR(B)] deposits to qualify for its special USD–INR forex swap window to August 31, 2026.
Key Facts
An FCNR(B) deposit is a term/fixed deposit maintained in approved foreign currencies by NRIs and OCIs with authorized banks in India; unlike rupee-denominated NRE or NRO accounts, funds are held entirely in foreign currency, eliminating conversion risk. The original FCNR scheme (1975) placed exchange risk on the RBI/Government; the revised FCNR(B) scheme (May 1993) shifted forex exposure to commercial banks. It is governed under FEMA, 1999 and RBI Master Directions on Non-Resident Deposits. Deposits run for 1–5 year tenors in currencies such as USD, GBP, EUR, JPY, CAD and AUD, with interest fully exempt from Indian income and wealth tax and full repatriability of principal and interest.
Significance
FCNR(B) deposits attract stable, long-term foreign currency capital into Indian banking, reinforce the external Balance of Payments, and bolster gross forex reserves while giving NRIs a secure, tax-free, exchange-risk-free investment avenue. Under the special swap window, banks sell the foreign currency principal to the RBI at spot rate for rupees to fund domestic credit, with a par forward contract to buy back the dollars at maturity — eliminating banks' hedging costs. RBI also offers regulatory sweeteners like CRR/SLR exemptions during mobilization drives.
Challenges / Way Forward
The advancement of the swap-window deadline signals RBI's calibrated approach to timing foreign-currency mobilization; banks must price deposits competitively within the window while managing the foreign currency exposure they carry under the post-1993 FCNR(B) framework.
Exam Angle
GS Paper III — Indian economy, banking, external sector. Prelims: FCNR(B) vs NRE/NRO accounts, 1975 origin and 1993 revision, FEMA 1999, 1–5 year tenors, tax exemption and repatriability, RBI swap window mechanics, CRR/SLR exemptions.
Remember this
- New RBI deadline for FCNR(B) deposits to qualify for the special USD–INR swap window: August 31, 2026.
- FCNR(B) deposits are held entirely in foreign currency — depositor bears zero exchange risk.
- Original FCNR scheme: 1975; revised FCNR(B) scheme: May 1993 (banks bear forex exposure).
- Governed under FEMA, 1999 and RBI Master Directions on Non-Resident Deposits.
- Tenors: 1 to 5 years; interest 100% exempt from Indian income and wealth tax for non-residents.
- Both principal and interest are fully and freely repatriable overseas.
- In the swap window, RBI buys forex at spot and sells it back at par forward, removing banks' hedging costs.