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The Reserve Bank of India has once again deployed its most powerful tool for attracting NRI dollar deposits — the FCNR(B) forex swap window. The mechanism is structurally identical to the 2013 facility that pulled approximately USD 26 billion into Indian banks in the aftermath of the taper tantrum. The 2026 context is different: the rupee has depreciated roughly 7% year to date, India’s forex reserves dropped from a February 2026 peak of approximately USD 728 billion to USD 682 billion, FII equity outflows have been sustained through 2025–26, and the West Asia oil supply situation has pushed crude above USD 100 a barrel. The RBI needed a lever. The FCNR(B) swap window is that lever.
Key Takeaways
- RBI Circular FMOD.MAOG.No.S-56/01.06.016/2026-27 dated 8 June 2026 introduced a USD-INR concessional forex swap facility for fresh FCNR(B) deposits of 3–5 year tenure mobilised between 8 June and 30 September 2026. Swap window closes 16 October 2026.
- The RBI absorbs the full hedging cost of 280–300 basis points per annum, enabling banks to offer 5.5–7.1% USD deposit rates against a pre-announcement range of 2–4%. Rates as of 23 June 2026: AU Small Finance Bank 7.10%, HDFC / ICICI / Axis 6.00%, SBI 5.5–5.75% via GIFT City, PNB 6.10%.
- The swap covers only the principal amount, not the interest component. Banks bear the interest exchange risk.
- CRR and SLR exemptions apply to eligible deposits, amplifying the rate advantage banks can pass to NRI depositors.
- Banks are permitted to extend loans and issue SBLCs against FCNR(B) deposits mobilised under the scheme — confirmed in RBI’s 23 June 2026 FAQ.
- A companion circular covers ECB swaps for PSU borrowers (open until 15 January 2027 for drawdowns by 31 December 2026) and OFCB swaps for AD-I banks on the same timeline.
- GIFT City branches can mobilise FCNR(B) deposits under the scheme. SBI’s GIFT City branch is offering differential rates and leverage of up to nine times the deposit amount to NRI / HNI depositors.
- Interest on FCNR(B) deposits is fully exempt from Indian income tax under Section 10(15)(iv)(fa) of the Income Tax Act, 1961 for eligible NRIs, PIOs, and OCIs. No TDS. The deposit window closes 30 September 2026.
The Structural Problem the Swap Solves
To understand why the FCNR(B) swap window is legally and economically significant, it is necessary to understand the structural mismatch it addresses. An Authorised Dealer Category-I bank that accepts a USD-denominated deposit from an NRI receives dollars but lends predominantly in rupees. When the deposit matures, the bank must return dollars to the depositor. Bridging that mismatch requires a currency hedge, which as of June 2026 costs approximately 280–300 basis points per annum in the forward market. That hedging cost directly suppresses the interest rate the bank can offer: if a bank deploys dollar deposits at the rupee lending rate of roughly 9–10%, and then spends 280–300 bps on hedging, the residual it can offer an NRI depositor is 2–4% — uncompetitive against US Treasury yields currently around 4.5%.
RBI Circular FMOD.MAOG.No.S-56/01.06.016/2026-27 eliminates that constraint for the window period. Under the swap, an AD-I bank deposits USD with the RBI at the spot rate and the RBI agrees to return the USD at the same rate at maturity. The bank has a fully hedged USD-INR position at zero explicit hedging cost. The RBI bears the currency risk. Banks save 280–300 bps per annum, available to be passed to depositors as higher interest rates, subject only to the interest rate ceiling under the RBI’s Master Direction on Interest Rate on Deposits.
The Legal Mechanics: What the Circular Actually Does
The circular operates through four interlocking mechanisms. First, the at-par swap. Banks execute a plain buy/sell forex swap with the RBI’s Financial Markets Operations Department for the USD amount of eligible FCNR(B) deposits. The buy leg is at the prevailing spot USD-INR rate; the sell leg is at a forward rate set by the RBI, effectively eliminating market hedging cost. The swap is non-cancellable once executed, regardless of what happens to the underlying deposit.
Second, CRR and SLR exemptions. Under separate RBI circulars issued between 8 and 19 June 2026, fresh FCNR(B) deposits mobilised under the swap scheme are exempt from Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR) requirements. The exemption means the entire deposit amount is deployable by the bank for lending — reducing the effective cost of the deposit further and creating additional room for higher depositor rates.
Third, the interest rate ceiling framework. Banks may offer any rate up to the ceiling set in the RBI Master Direction: for FCNR(B) deposits of 1 year to under 3 years, SOFR/Swap rate plus 200 basis points; for 3 to 5 years, SOFR/Swap rate plus 300 basis points. With SOFR around 4–4.5%, the effective ceiling for 3–5 year deposits is approximately 7–7.5% — consistent with the 7.10% rate being offered by AU Small Finance Bank.
Fourth, the loan and lien facility. RBI’s 23 June 2026 FAQ confirmed that AD-I banks — including their overseas branches and GIFT City branches — are permitted to extend loans to FCNR(B) account holders and mark a lien on such deposits. Banks may also issue Standby Letters of Credit (SBLCs) in favour of overseas lenders against these deposits. This is significant for NRIs who wish to use FCNR(B) deposits as collateral for borrowings in their country of residence.
The GIFT City Dimension
State Bank of India’s GIFT City branch in Ahmedabad is among the first to roll out FCNR(B) deposits under the swap scheme. GIFT City IFSC branches of banks operate under the IFSCA regulatory framework. For FCNR(B) deposits, the key distinction is that the GIFT City branch can offer rates under the same RBI interest rate ceiling as domestic branches while leveraging the IFSC’s non-resident-friendly infrastructure.
The SBI GIFT City offering of 5.5% on three-year and 5.75% on four-year USD deposits is structured through the GIFT City branch’s use of the RBI swap, providing a tax-neutral international financial centre entry point for NRI depositors. This is particularly relevant for NRIs with complex international tax situations — the IFSC framework offers a cleaner classification environment for certain treaty purposes, and GIFT City’s non-resident classification architecture is well-suited to large-ticket deposits from HNI NRIs and corporate treasury accounts.
The RBI’s FAQ of 23 June 2026 also confirmed that banks are permitted to offer differential interest rates under the swap scheme, provided they comply with existing RBI directions on deposit rates. This gives GIFT City branches latitude to price FCNR(B) deposits differently from the same bank’s domestic branches — structurally important for banks like SBI, HDFC, and ICICI that operate both domestic and IFSC branches and may wish to channel high-value NRI deposits through their GIFT City arms. The clipping reports SBI is offering leverage of up to nine times the deposit amount to NRIs and HNIs through the GIFT City branch, using FCNR(B) deposits as collateral — enabled by the 23 June 2026 loan-and-lien clarification.
The ECB and OFCB Companion Package
The FCNR(B) swap is one element of a three-part package announced by the RBI between 5 and 8 June 2026. The second element is a concessional USD-INR forex swap for External Commercial Borrowings availed by Public Sector Undertakings with a minimum average maturity of three years. This facility is open to PSUs in which the Central or State government holds majority ownership, or which are incorporated and controlled under Central or State legislation. The ECB swap window runs until 15 January 2027 for drawdowns by 31 December 2026. The third element is a concessional USD-INR swap for Overseas Foreign Currency Borrowings availed by AD-I banks with a minimum maturity of three years, likewise open until 15 January 2027.
AD-I banks reporting daily under the RBI’s 19 June 2026 circular must submit details of all three categories separately by 6 PM each day, including nil statements on transaction-free days. The combined effect of the three facilities is a systematic reduction of hedging cost for the three categories of USD-denominated liability that contribute most to India’s short-to-medium-term external balance: NRI deposits via FCNR(B), PSU foreign borrowings via ECB, and bank-level dollar borrowings via OFCB.
What NRIs and PIOs Must Assess Before 30 September 2026
The window closes for new deposits on 30 September 2026. NRIs, PIOs, and OCIs should evaluate four dimensions before that date.
After-tax return in the country of residence. Interest on FCNR(B) deposits is fully exempt from Indian income tax under Section 10(15)(iv)(fa) of the Income Tax Act, 1961, with no TDS for eligible NRIs. However, India’s exemption does not override foreign tax obligations. US-based NRIs must report FCNR(B) interest as foreign income on their federal return. UAE-based NRIs, where there is no personal income tax, retain the full benefit. The after-tax return must be compared against locally available USD instruments — US Treasuries at approximately 4.5%, US money market funds at 4.5–5.0% — before the FCNR(B) rate advantage can be assessed precisely.
Lock-in and liquidity risk. Deposits carry a one-year lock-in from opening. After the lock-in, premature withdrawal is at the bank’s discretion and typically applies the rate for the completed tenor. The bank-side swap runs to maturity and cannot be cancelled. An NRI who anticipates needing dollars before year three should not treat FCNR(B) as a liquid instrument.
FEMA repatriation mechanics. Principal and interest on FCNR(B) deposits are freely repatriable under FEMA without limit, treated as current account transactions requiring no prior RBI approval. At major banks, repatriation processing typically takes two to three working days.
FBAR and FATCA implications for US-based NRIs. US persons holding FCNR(B) accounts exceeding USD 10,000 (equivalent) must report the account on FinCEN Form 114 (FBAR) and on Schedule B of their federal return. Under FATCA, Indian banks that are Participating Foreign Financial Institutions report specified US person accounts to the IRS through the India-US IGA. US-person NRIs should confirm correct classification with their tax advisor before opening.
What AD-I Banks and GIFT City Branches Must Do Now
Daily reporting to the RBI’s Financial Markets Operations Department by 6 PM — covering FCNR(B) deposits, ECBs, and OFCBs mobilised under concessional swap facilities — is mandatory under the 19 June 2026 circular, including nil statements. Reporting formats are prescribed and must be submitted to designated RBI email addresses.
GIFT City branches offering differential FCNR(B) rates must ensure rate-setting complies with both the RBI’s interest rate ceiling under the Master Direction on Interest Rate on Deposits and the IFSCA’s own framework for IFSC Banking Units. The loan and lien facility confirmed in the 23 June 2026 FAQ confirms permissibility but does not override bank-level credit underwriting requirements. Banks must track the cut-off for eligible deposits carefully — deposits must be mobilised between 8 June and 30 September 2026, and renewals of existing deposits are eligible only if they meet the maturity requirement and fall within the window.
The Ahmedabad and Gujarat Angle
SBI’s GIFT City branch in Ahmedabad is among the first lenders to roll out the scheme. GIFT City’s positioning as India’s international financial services hub makes it the natural destination for high-ticket NRI deposits, particularly from NRI communities in the US, UK, UAE, and Singapore that have Gujarat roots. The concentration of NRI-origin capital in Gujarat — particularly from the US (New Jersey, California, Texas), UK (Leicester, London), and UAE — means the FCNR(B) window has a disproportionate relevance to Ahmedabad-based families with NRI members and NRI-controlled family offices channelling dollar capital into India. The intersection of the FCNR(B) swap window with FEMA’s repatriation framework and the income-tax exemption under Section 10(15)(iv)(fa) is precisely the advisory space where structuring counsel adds value beyond what a bank’s NRI desk can provide.
Looking Ahead
The 2013 FCNR(B) window mobilised approximately USD 26 billion; industry estimates for 2026 range from USD 35 to USD 60 billion, subject to how quickly banks price and distribute the rate advantage. The tighter rate differential with US instruments — US Treasuries at 4.5% versus India’s FCNR ceiling of 7–7.5% — is narrower than in 2013, but the absolute India rate is sufficiently attractive for NRIs in zero-tax jurisdictions and for those planning to repatriate capital to India in any event.
Two regulatory events to watch: The RBI’s NRE deposit CRR/SLR exemption runs until 30 September 2026 and should further boost NRE inflows alongside FCNR(B). And the companion G-Sec and equity reforms — including the Income-tax (Amendment) Ordinance, 2026 (No. 2 of 2026) exempting FII interest and capital gains on government bonds — are structural changes designed to make India a permanent destination for global institutional capital beyond the immediate forex stabilisation window.
Frequently Asked Questions
What is the RBI FCNR(B) swap facility 2026?
The RBI’s FCNR(B) forex swap facility, introduced by Circular FMOD.MAOG.No.S-56/01.06.016/2026-27 dated 8 June 2026, is a concessional USD-INR buy/sell swap made available to Authorised Dealer Category-I banks that mobilise fresh FCNR(B) deposits of three to five years between 8 June and 30 September 2026. The RBI absorbs the hedging cost of approximately 280–300 basis points per annum, enabling banks to offer significantly higher interest rates to NRI depositors.
What interest rates are banks offering on FCNR(B) deposits under the swap scheme?
As of 23 June 2026: AU Small Finance Bank 7.10%, Punjab National Bank 6.10%, HDFC Bank / ICICI Bank / Axis Bank 6.00% across 3–5 year tenors, State Bank of India 5.50% on three-year and 5.75% on four-year deposits via its GIFT City branch. Rates may change before the 30 September 2026 deadline. The RBI interest rate ceiling for 3–5 year FCNR(B) deposits is SOFR plus 300 basis points.
Is FCNR(B) deposit interest taxable in India?
Interest earned on FCNR(B) deposits is fully exempt from income tax in India under Section 10(15)(iv)(fa) of the Income Tax Act, 1961, for eligible non-resident depositors (NRIs, PIOs, OCIs, RNOR). No TDS is deducted. The depositor may have income tax obligations in their country of residence — US-based NRIs must report the interest as foreign income on their US federal return. India’s exemption does not override foreign tax obligations.
Can I take a loan against my FCNR(B) deposit under the swap scheme?
Yes. RBI’s 23 June 2026 FAQ confirmed that AD-I banks are permitted to extend loans to FCNR(B) account holders and mark a lien on deposits mobilised under the swap scheme. Banks may also issue Standby Letters of Credit (SBLCs) in favour of overseas lenders against these deposits. Specific loan terms are set by the individual bank’s credit policy.
What is the last date to open an FCNR(B) deposit under the swap scheme?
Eligible deposits must be mobilised between 8 June 2026 and 30 September 2026. The RBI swap window remains open until 16 October 2026. Deposits carry a one-year lock-in from the date of opening. The swap executed by the bank with the RBI runs to maturity and cannot be cancelled regardless of the deposit status.
What is the difference between the FCNR(B) swap and the ECB swap?
The FCNR(B) swap covers fresh NRI deposits of three to five years and is available to AD-I banks targeting NRI retail and HNI dollar deposits. The ECB swap is for Public Sector Undertakings raising External Commercial Borrowings of three years or more average maturity, open until 15 January 2027 for drawdowns by 31 December 2026. A third facility covers Overseas Foreign Currency Borrowings by AD-I banks on similar terms. All three offer concessional USD-INR buy/sell swaps from the RBI.
Speak to Candour Legal’s Banking and NRI advisory team
Candour Legal advises NRIs, PIOs, OCI cardholders, and their family offices on FCNR(B) structuring, FEMA-compliant repatriation, GIFT City entity setup and NRI banking, and cross-border tax advisory for NRI depositors across the US, UK, UAE, and Singapore.
About the author
Manasvi Thapar, Founding Advocate at Candour Legal, advises NRIs, PIOs, family offices, and financial institutions on FEMA compliance, NRI investment structuring, GIFT City IFSC setup, and banking regulatory matters.
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