RBI Opens FCNR(B) Deposit Window to Attract NRI Foreign Currency and Build Forex Reserves

The Reserve Bank of India (RBI) has opened a special window to pull more foreign currency into the country by encouraging banks to raise Foreign Currency Non-Resident (Bank) deposits, known as FCNR(B) deposits. Banks can raise these deposits for periods of three to five years until 30 September 2026. To make the offer work, the RBI has agreed to absorb the hedging cost banks normally face when they take in foreign currency for long periods.

An FCNR(B) deposit is simply a fixed deposit that a Non-Resident Indian (NRI) keeps in a foreign currency such as the US dollar, rather than in rupees. Because the money stays in the original currency, the depositor does not have to worry about the rupee losing value during the deposit term. The interest earned is also free of Indian tax, so for the NRI only the interest rate matters when comparing options.

Under the scheme, banks can park the foreign currency with the RBI at today's exchange rate and return it after the term by paying back the same number of rupees they received. This removes the risk of rupee depreciation from the bank's side. The RBI has capped the interest rate at 350 basis points above the Secured Overnight Financing Rate (SOFR), which currently allows banks to offer up to roughly 7.15 per cent. Several private banks have already raised their FCNR(B) rates to between 6 and 6.6 per cent.

The step matters because it injects rupee funds into the banking system, letting banks lend more, while also lifting the RBI's foreign exchange reserves as fresh dollars come in. India's reserves already cover close to 11 months of imports, so the move is being made from a position of comfort rather than crisis. A similar swap scheme in 2013 drew in around 26 to 35 billion dollars, and some economists expect this round could bring 20 to 55 billion dollars, partly because NRIs can borrow cheaply abroad and use leverage to earn high returns.

For an aspirant, the key idea is the link between RBI policy tools and the balance of payments: when other foreign inflows weaken, the central bank can use deposit schemes like this to defend the rupee and strengthen reserves. Remember the meaning of FCNR(B), the role of hedging cost being borne by the RBI, and that it echoes the 2013 measure.