The Reserve Bank of India (RBI) has decided to close its special swap facility for FCNR(B) deposits earlier than planned.
The facility will now be available only for deposits mobilised until August 31, 2026, instead of the earlier September 30 deadline.
The RBI said the decision was taken because of the strong response to the scheme and the large foreign currency inflows it has generated.
As of August 13, inflows through the special facility had already crossed $56.85 billion.
Why Is the RBI Closing the Window Early?
The special swap facility was introduced to attract more foreign currency into India.
It made FCNR(B) deposits more attractive for overseas investors by allowing banks to access a swap facility from the RBI for three to five years, helping them manage the cost of hedging foreign currency.
The response was much stronger than expected.
As of August 13, banks had reported:
$52.3 billion through FCNR(B) deposits
$2.805 billion through Overseas Foreign Currency Borrowings
$1.741 billion through External Commercial Borrowings
Together, the inflows had reached $56.85 billion.
The RBI believes the inflows expected by the end of August will be enough to achieve the objective of the scheme.
RBI Wants to Manage Future Forex Liabilities
While large foreign currency inflows are helpful, they can also create challenges when the deposits eventually mature.
If the FCNR(B) facility continued to attract money at the same pace until September 30, the RBI could have faced a much larger stock of foreign currency liabilities in the future.
By closing the window earlier, the central bank can limit these potential maturity-related risks.
The RBI has clarified that swaps against FCNR(B) deposits mobilised under the facility can still be carried out with the central bank until September 11, 2026.
Why Did FCNR(B) Deposits Become So Popular?
The special facility became attractive after the RBI temporarily removed interest-rate restrictions on fresh FCNR(B) and NRE deposits.
Banks subsequently increased deposit rates, encouraging overseas investors and non-resident Indians to bring more dollars into Indian banks.
This resulted in a sharp increase in foreign currency inflows despite factors such as high US interest rates, oil price volatility and geopolitical uncertainty.
The scale of the inflows has also drawn comparisons with the RBI’s 2013 FCNR(B) deposit programme, which attracted around $26 billion when the Indian rupee was under significant pressure.
That earlier programme helped strengthen India’s foreign exchange reserves, but the RBI also had to carefully manage the outflow of funds when those deposits matured.
What Happens to Other Borrowing Schemes?
The RBI has not closed all parts of the special facility.
The schemes covering External Commercial Borrowings (ECBs) and Overseas Foreign Currency Borrowings (OFCBs) will continue to remain open until December 31, 2026, as originally planned.
The early closure therefore applies specifically to the FCNR(B) deposit swap window.
Overall, the RBI’s decision reflects the strong response to the facility while also allowing the central bank to keep a closer watch on the foreign currency liabilities that could arise in the future.