India has opened up its doors to attract more dollars from non-resident Indians. Somewhat similar to the scheme launched in 2013 to attract NRI deposits, the RBI has once again announced a US Dollar-Rupee Forex Swap Facility for fresh FCNR (B) deposits.

The ball is now in the court of banks in India. Experts believe banks can make this scheme very attractive for NRIs. “If we look at the cost for banks, the current FCNR (B) Rate is nearly 3.35% on 3 years deposit. Presently, the cost of hedging, the forward premium, is nearly 3.5%, and the current card rate for a 3-year deposit is 6.3% on resident deposits.

Thus, banks can offer attractive FCNR (B) pricing in the range of 5.5%-6%. This will be quite attractive even if we compare with current US yields at 4.20% for 3 years,” says Dr. Soumya Kanti Ghosh, Group Chief Economic Adviser, State Bank of India, in his recent Ecowrap Report.

In the 2013 FCNR scheme, there was a facility of leverage that helped in the larger mobilization of funds. However, conditions today are somewhat different. “At that time, mobilization was done using leverage with overseas branches of Indian banks providing an overdraft against dollar deposits to be parked at an Indian branch in FCNR (B).

This option is available now also. However, the interest rate gap has narrowed significantly, reducing the possibility of leveraging this time. In the case of 3 years, the rate gap has now reduced to 2.1%, and for 5 years it has narrowed down to 2.2%,” wrote Ghosh in the note.

In short, while leverage remains a paper option, the narrower interest rate gap may limit how aggressively it is used this time around.

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India’s rupee is under increasing pressure due to rising demand for dollars. INR has depreciated by as much as 6% year-to-date and 11.5% over the last 12 months. At the same time, NRI deposit inflows, which stood at $104.5 billion in 2024-25, have slipped to $101.8 billion in 2025-26. To reverse this trend, measures are being implemented to draw in funds from non-resident Indians (NRIs).

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RBI Steps In: The Swap Facility

Banks will be allowed to use the Swap Facility for funds mobilised for a minimum tenor of three years and a maximum tenor of five years, till September 30, 2026. The NRI deposits under the Swap Facility will have a lock-in period of one year.

How Much Can India Mobilise?

Global brokerage firm Jefferies expects RBI’s FCNR-B measures could attract $50-70 billion inflows, as against nearly $34 billion mobilised in 2013. The key attraction, Jefferies notes, would be the ability to use leverage under the new framework.

If the leverage facility is made available, Jefferies estimates, “with 7-10x leverage and spread of 1.5-2%, customers can generate 17-27% US$-IRR annually over 3-5 years.” However, Jefferies indicated that details regarding whether banks can provide leverage for customers to park deposits are not yet announced and may be crucial for the scheme’s success.

India’s Punjab National Bank expects the banking sector to raise $35 to $40 billion in foreign currency deposits, according to a top executive’s statement to Reuters. Ghosh of SBI expects around $40-45 billion through this route. Overall, it would be a significant addition to India’s current forex reserves of USD 682 billion.

How the Swap Works

RBI is essentially giving banks currency risk insurance. Here is how it may work: A bank collects $1 million from NRIs and sells those dollars to RBI at today’s exchange rate, receiving rupees in return. On maturity, the bank is obligated to buy back those same $1 million at the pre-fixed rate agreed on the date of the swap. Since the exchange rate is locked upfront, any rupee depreciation during the period is borne by the RBI, not the bank.

In technical terms, under the swap arrangement, a bank can sell US Dollars to RBI and simultaneously agree to buy the same amount of US Dollars at the end of the swap period, to pay the NRI his or her original capital amount.

Why Banks Won’t Lose

With INR depreciating particularly fast in the last year, banks previously saw a risk in meeting the foreign exchange cost. Now, RBI is de-risking banks so they can aggressively attract NRI dollar deposits, bringing much-needed foreign exchange into India. Under the swap arrangement, banks would be free to offer a higher rate of interest on these FCNR deposits.

What Are FCNR Deposits?

Unlike NRE or NRO accounts, which are maintained in Indian rupees, FCNR (B) deposits are maintained in foreign currency. Maturity proceeds from FCNR(B) deposits can be fully repatriated, and no income tax is deducted on interest earned. The interest is payable in the same currency as the deposit, either at half-yearly intervals or on maturity.

FCNR accounts can be opened jointly with other NRIs, and NRIs are also permitted to open joint accounts with resident close relatives on a former or survivor basis, and a nomination facility is permitted.

Simply put, FCNR(B) deposits eliminate currency risk by maintaining principal and interest in foreign currency, avoiding rupee depreciation impacts. Interest earned is tax-free in India, enabling NRIs to save foreign earnings and earn higher rates without exchange risks.

Disclaimer: This article is for informational purposes only and does not constitute financial, investment, or legal advice. Data and estimates cited are sourced from publicly available reports and statements. Interest rates and scheme terms are subject to change as per RBI guidelines. Readers are advised to consult a qualified financial advisor before making any investment decisions.