FCNR(B) deposits: Who bears the currency risk? | Explained
The Reserve Bank of India launched a special swap facility in June 2026 to attract non‑resident Indian deposits in foreign‑currency non‑resident (FCNR(B)) accounts, later closing the window on August 31, 2026. While the scheme exceeded its $50 billion target by mobilising over $127 billion, the RBI hedged only the principal amount, leaving interest‑payment risk to the banks.
- ✓The Reserve Bank of India launched a special swap facility in June 2026 to attract non‑resident Indian deposits in foreign‑currency non‑resident (FCNR(B)) accounts, later closing the window on August 31, 2026.
- ✓Indian banks collectively attracted more than $127 billion through the scheme, far surpassing the RBI’s original $50 billion goal.
- ✓While the scheme exceeded its $50 billion target by mobilising over $127 billion, the RBI hedged only the principal amount, leaving interest‑payment risk to the banks.
The RBI introduced a dedicated swap mechanism in June 2026 to encourage NRIs to place funds in FCNR(B) deposits, aiming to bolster foreign‑exchange reserves amid rupee pressure from high oil prices. The facility was designed to shield banks from currency fluctuations on the principal, but it did not cover the dollar‑denominated interest that banks must pay depositors.
Indian banks collectively attracted more than $127 billion through the scheme, far surpassing the RBI’s original $50 billion goal. By August 7, 2026 the central bank had recovered $31.2 billion of the foreign‑currency assets, roughly 55 % of the amount mobilised, and could potentially earn 4.5‑5 % on the reserves generated. Analysts estimate hedging costs of up to 3 % per year, translating to an annual notional expense of about $2.1 billion and a five‑year cumulative cost of $10.5 billion, or 1.45 % of India’s $700 billion reserve stock.
FCNR(B) deposits typically carry three‑to‑five‑year maturities, meaning banks must source dollars for interest payments when the deposits mature. Reuters noted that foreign banks largely hedge this exposure, whereas many state‑run and private Indian lenders leave it unhedged due to the 3 % annual hedging cost, opting instead to purchase dollars spot‑wise when needed. The arrangement places the foreign‑exchange risk of interest payments on the banks, while the RBI benefits from a cheaper source of foreign‑currency funding and an expanded reserve base.
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| Issuing Authority | The Hindu National |
|---|---|
| Topic Category | BUSINESS |
| Jurisdiction | All India / National |
| Publication Date | 10 September 2026 |