4 min readNew DelhiUpdated: Aug 19, 2026 09:29 AM IST
The Reserve Bank of India’s (RBI) surprise decision to close the concessional swap facility for Foreign Currency Non-Resident (Bank) deposits one month earlier than planned is a “prudent” move, bankers told The Indian Express on Tuesday, adding that they expect to meet their internal targets.
While one public sector bank executive said its internal target of $2 billion has already been met, another said they expected to miss their target only slightly.
“This move by the RBI is prudent because ultimately it’s a liability,” the second banker said, referring to the FCNR(B) deposits.
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On Friday, the RBI shocked bankers and the markets by saying that in light of the “encouraging response” to the FCNR(B) deposit swap facility, it will now close on August 31 as against the initial deadline of September 30. Announced on June 5 and made operational on June 8, the swap facility helped Indian banks rake in a massive $52.3 billion as of August 13. Bankers expect another $20 billion or so to come in by the end of the month.
Since Friday, market players have speculated why the RBI may have prematurely closed the swap facility, with some guessing the high cost of hedging these deposits may have played a role.
“Our forecast implies ~50% more inflows under the scheme compared to 2013, when seen as share of GDP. RBI and government may have considered that sufficient to close the scheme early, given there is a risk these funds come at a high cost,” ICICI Securities Primary Dealership said in a note on Tuesday.
With the RBI covering the entire currency hedging cost of the FCNR(B) deposits, Soumya Kanti Ghosh, State Bank of India’s Group Chief Economic Adviser, said in a report on August 17 that the potential cost to the RBI may be around 15% of the amount raised. Assuming $70 billion is raised, the cost would be around $10.5 billion.
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However, Ghosh dismissed this cost as a reason to close the swap window early, saying while the amount seems large, it is “minimal” when viewed against the scale of India’s foreign exchange reserves of around $700 billion at present and around $800 billion five years down the line.
Instead, Ghosh pointed to the rupee’s movement since the swap facility’s announcement, noting that it had barely moved. In comparison, in 2013 — when a similar scheme was in place — the rupee had strengthened by almost 10%.
“It is important that while the magnitude of appreciation may differ from 2013 given the substantially different global and domestic macroeconomic environment, the direction of the impact must remain supportive for the rupee. The RBI should look into activist and surprise intervention strategies to ensure that somehow the market bias that exchange rate has only a depreciating bias right now must be corrected,” Ghosh said.
With banks offering interest rates of even greater than 7% in some instances, the FCNR(B) deposits are being lapped up by NRIs, with returns being as high as 15% due to the leverage that is being provided. A similar scheme was announced by the RBI in September 2013 to shore up its foreign exchange reserves amid the ‘taper tantrums’ caused by foreign capital outflows in anticipation of monetary policy tightening by the US Federal Reserve. Banks had then raised around $26 billion.
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The swap facility was part of a broader package announced in June to encourage foreign capital inflows and strengthen the rupee. Apart from FCNR(B) deposits, concessional swap facilities are also in place for External Commercial Borrowings (ECBs) and Overseas Foreign Currency Borrowings (OFCBs). These will continue to be open till the end of 2026. As of August 13, $2.81 billion had been raised under the former, while $1.74 billion had come under the latter.
