RBI’s FCNR (B) swap window saw strong inflows. Why then was it closed early?
The special swap window announced on June 8 has to inflows of $56.84 as of August 14, including $52.30 billion in FCNR (B) deposits alone.
- Aug 17, 2026,
- Updated Aug 17, 2026 5:18 PM IST
Reserve Bank of India Governor Sanjay Malhotra on August 5, 2026 said as of now there is no proposal under consideration to close the scheme prematurely. He was responding to a query on the strong inflows under the FCNR (B) deposit scheme and the outlook for the special concessional swap window that had been launched in June to bolster the foreign exchange reserves.
Nine days later, the central bank did just the opposite, the special FCNR (B) window would be closed a month earlier.
“Based on the encouraging response to the swap facility for FCNR (B) deposits and the resultant forex inflows, it has been decided that the swap facility for FCNR (B) deposits will be available only for deposits mobilised till August 31, 2026. The swaps under this facility i.e. FCNR (B) deposits, may be availed with RBI till September 11, 2026,” it said.
As per the original plan the window was supposed to be open till September 30, and the swap facility was to be available till October 16. Even as the FCNR (B) window was being closed early, the scheme for raising external commercial borrowings (ECB) and overseas foreign currency borrowings (OFCB) would continue as earlier announced, till December 31.
Not many had expected the FCNR (B) window to close early, more so after the RBI Governor’s clear statement on August 5.
What may have prompted the early closure of the window is the strong inflows the scheme has seen.
The special swap window was announced on June 8. As of August 14, inflows had touched $56.84 billion. Out of the total inflows, FCNR (B) deposits have alone accounted for $52.3 billion. A similar window that the RBI had announced back in 2013 to shore up the foreign exchange reserves had netted close to $26 billion via FCNR (B) deposits. So, this time around the flows have been significantly robust.
Under the scheme, banks would raise FCNR (B) deposits for 3-5 year tenor from NRI depositors. These deposits raised from non-resident Indians are held in foreign currency. During the special swap window, a bank could sell US dollars in multiples of $1 million to RBI and get equivalent rupee in return, which could be used for lending or other purposes.
The bank would simultaneously agree to buy the same amount of US dollars at the end of the swap period. The RBI would absorb the currency hedging cost, an incentive for banks.
The RBI also clarified later that banks mobilising FCNR (B) deposits could extend loans against it to non-residents.
Economists were expecting around $90 billion in inflows, with around $75-80 billion via FCNR (B) deposits and around $10-15 billion via ECB and OFCB.
The RBI Governor had stated earlier this month that the central bank had not set any target on how much flows it intended to garner. So, what prompted the early closure?
According to Rajani Sinha, chief economist at CAREEdge Ratings, strong inflows would have also led to excessive liquidity, hence perhaps the decision to close it a month earlier. The cost burden has to be eventually borne by the central bank and the government.
Economists have earlier estimated the hedging costs to be around 2.5-3% annually.
The scheme was launched at a time the rupee had been under tremendous pressure against the US dollar in the backdrop of the US-Iran war that had led to a sharp rise in oil prices, in turn driving up India’s import bill. There had also been massive sell-off by foreign institutional investors from India’s equity markets adding to the pressure on the rupee. In May, the rupee hit a life-time low of 96.96 against the greenback.
There has been some stability since, on the back of the inflows as well as correction in oil prices. FIIs have also been net buyers in Indian equity market in July and so far in August.
The rupee slipped on Monday, August 17, following the RBI decision to shut the FCNR (B) window early. It touched 95.60 in intra-day trading, its weakest in around two weeks.
On June 4, when the special swap window was announced, the rupee had been around 95.74. So, while the rupee now may be well above the record low of May, it has not appreciated much since the window was announced.
Sakshi Gupta, principal economist at HDFC Bank says that with the premature end to the FCNR (B) scheme, any upside for the rupee, due to any continued positive sentiment effect, was now limited.
“Moreover, elevated global yields, in light of developed market central markets turning towards rate hikes and the uncertainty around the West Asia conflict continue to cast a shadow over the trajectory of the rupee over the coming months,” she said.
Gupta sees rupee trading in the 95-96 range to the US dollar in the near-term, with a possible move towards 96-98 band by the year-end.
Sinha of CareEdge feels another $15 billion could be mobilised by the end of August.
“Moreover, some acceleration towards the end of the scheme cannot be ruled out, as deposit mobilisation could pick up as the deadline approaches. Consequently, total inflows under the FCNR scheme could reach around $70 billion, compared to $80 billion estimated in end July,” Sinha said. She is expecting $10-15 billion in inflows via ECBs and OFCB.
Gupta of HDFC Bank is also expecting total inflows of around $60-70 billion.
Most Indian banks were generally offering around 9 times leverage against the FCNR (B) deposits, while foreign banks offered a leverage of 19-29 times.
With the window shut prematurely, a few bankers may have to rush to raise some short-term funds abroad to finance the promised leverage to FCNR (B) clients, according to an analyst.
Despite the window being prematurely closed, the strong inflows via FCNR (B) deposits are expected to aid India’s balance of payments situation (money coming into the country versus money going out) in the current financial year.
Sinha expects the balance of payments surplus could reach $54 billion in 2026-27, while also strengthening the capital account. Gupta sees a BoP surplus of around $50 billion this year.
Reserve Bank of India Governor Sanjay Malhotra on August 5, 2026 said as of now there is no proposal under consideration to close the scheme prematurely. He was responding to a query on the strong inflows under the FCNR (B) deposit scheme and the outlook for the special concessional swap window that had been launched in June to bolster the foreign exchange reserves.
Nine days later, the central bank did just the opposite, the special FCNR (B) window would be closed a month earlier.
“Based on the encouraging response to the swap facility for FCNR (B) deposits and the resultant forex inflows, it has been decided that the swap facility for FCNR (B) deposits will be available only for deposits mobilised till August 31, 2026. The swaps under this facility i.e. FCNR (B) deposits, may be availed with RBI till September 11, 2026,” it said.
As per the original plan the window was supposed to be open till September 30, and the swap facility was to be available till October 16. Even as the FCNR (B) window was being closed early, the scheme for raising external commercial borrowings (ECB) and overseas foreign currency borrowings (OFCB) would continue as earlier announced, till December 31.
Not many had expected the FCNR (B) window to close early, more so after the RBI Governor’s clear statement on August 5.
What may have prompted the early closure of the window is the strong inflows the scheme has seen.
The special swap window was announced on June 8. As of August 14, inflows had touched $56.84 billion. Out of the total inflows, FCNR (B) deposits have alone accounted for $52.3 billion. A similar window that the RBI had announced back in 2013 to shore up the foreign exchange reserves had netted close to $26 billion via FCNR (B) deposits. So, this time around the flows have been significantly robust.
Under the scheme, banks would raise FCNR (B) deposits for 3-5 year tenor from NRI depositors. These deposits raised from non-resident Indians are held in foreign currency. During the special swap window, a bank could sell US dollars in multiples of $1 million to RBI and get equivalent rupee in return, which could be used for lending or other purposes.
The bank would simultaneously agree to buy the same amount of US dollars at the end of the swap period. The RBI would absorb the currency hedging cost, an incentive for banks.
The RBI also clarified later that banks mobilising FCNR (B) deposits could extend loans against it to non-residents.
Economists were expecting around $90 billion in inflows, with around $75-80 billion via FCNR (B) deposits and around $10-15 billion via ECB and OFCB.
The RBI Governor had stated earlier this month that the central bank had not set any target on how much flows it intended to garner. So, what prompted the early closure?
According to Rajani Sinha, chief economist at CAREEdge Ratings, strong inflows would have also led to excessive liquidity, hence perhaps the decision to close it a month earlier. The cost burden has to be eventually borne by the central bank and the government.
Economists have earlier estimated the hedging costs to be around 2.5-3% annually.
The scheme was launched at a time the rupee had been under tremendous pressure against the US dollar in the backdrop of the US-Iran war that had led to a sharp rise in oil prices, in turn driving up India’s import bill. There had also been massive sell-off by foreign institutional investors from India’s equity markets adding to the pressure on the rupee. In May, the rupee hit a life-time low of 96.96 against the greenback.
There has been some stability since, on the back of the inflows as well as correction in oil prices. FIIs have also been net buyers in Indian equity market in July and so far in August.
The rupee slipped on Monday, August 17, following the RBI decision to shut the FCNR (B) window early. It touched 95.60 in intra-day trading, its weakest in around two weeks.
On June 4, when the special swap window was announced, the rupee had been around 95.74. So, while the rupee now may be well above the record low of May, it has not appreciated much since the window was announced.
Sakshi Gupta, principal economist at HDFC Bank says that with the premature end to the FCNR (B) scheme, any upside for the rupee, due to any continued positive sentiment effect, was now limited.
“Moreover, elevated global yields, in light of developed market central markets turning towards rate hikes and the uncertainty around the West Asia conflict continue to cast a shadow over the trajectory of the rupee over the coming months,” she said.
Gupta sees rupee trading in the 95-96 range to the US dollar in the near-term, with a possible move towards 96-98 band by the year-end.
Sinha of CareEdge feels another $15 billion could be mobilised by the end of August.
“Moreover, some acceleration towards the end of the scheme cannot be ruled out, as deposit mobilisation could pick up as the deadline approaches. Consequently, total inflows under the FCNR scheme could reach around $70 billion, compared to $80 billion estimated in end July,” Sinha said. She is expecting $10-15 billion in inflows via ECBs and OFCB.
Gupta of HDFC Bank is also expecting total inflows of around $60-70 billion.
Most Indian banks were generally offering around 9 times leverage against the FCNR (B) deposits, while foreign banks offered a leverage of 19-29 times.
With the window shut prematurely, a few bankers may have to rush to raise some short-term funds abroad to finance the promised leverage to FCNR (B) clients, according to an analyst.
Despite the window being prematurely closed, the strong inflows via FCNR (B) deposits are expected to aid India’s balance of payments situation (money coming into the country versus money going out) in the current financial year.
Sinha expects the balance of payments surplus could reach $54 billion in 2026-27, while also strengthening the capital account. Gupta sees a BoP surplus of around $50 billion this year.