Higher interest on foreign deposits! RBI waives CRR and SLR requirements; new rules apply to FCNR(B) accounts..
The Reserve Bank of India (RBI) has recently issued clarifications regarding several key questions concerning the FCNR(B)—Foreign Currency Non-Resident (Bank)—deposit scheme and the special swap facility. The central bank has clarified that Indian banks may extend loans to NRI customers against their FCNR(B) deposits. Additionally, banks are permitted to place a lien on the respective deposits for such loans.
The RBI has also clarified that under the special foreign currency swap facility, it will bear the hedging cost only on the principal amount of the FCNR(B) deposits; the interest earned on the deposits will not be covered under this facility. This will assist banks in determining the accurate cost of deposits mobilized under the scheme.
Notably, on June 5, 2026, RBI Governor Sanjay Malhotra announced several measures to boost foreign currency inflows and strengthen the country's external financial position. As part of these measures, a special swap facility was introduced for FCNR(B) deposits, External Commercial Borrowings (ECBs), and foreign currency borrowings.
Under this scheme, the RBI will bear the entire hedging cost for new FCNR(B) deposits with tenures of three to five years mobilized by banks up to September 30, 2026, with the aim of encouraging banks to mobilize more foreign currency deposits.
According to the FAQs issued by the RBI, Indian banks and their overseas branches may extend loans to NRI customers holding FCNR(B) deposits. Furthermore, banks may issue Standby Letters of Credit (SBLCs) in favor of foreign lenders.
The central bank has clarified that banks may extend loans to FCNR(B) account holders even abroad and place a lien on the respective deposit as security.
The RBI stated that only the principal amount of the deposit would be covered under the special swap facility. Interest earned on deposits will not be included in this facility; banks will have to make separate arrangements for the interest component.
However, banks will be eligible to avail of this facility even if an FCNR(B) deposit had an original tenure of three years or more but has a residual maturity of less than three years at the time of utilizing the swap facility.
The RBI has also permitted banks to offer differential interest rates on FCNR(B) deposits. However, these rates must be determined based on the deposit tenure and amount, and banks must adhere to the Reserve Bank's guidelines regarding deposit interest rates.
The central bank clarified that banks may continue to offer standard FCNR(B) deposit schemes without utilizing the swap facility; however, records for such deposits must be maintained separately. The RBI also clarified regulations concerning External Commercial Borrowings (ECBs).
According to the central bank, companies may raise ECBs for any tenure permitted under the regulations. However, the benefit of the special swap facility will apply only to ECBs with a minimum average maturity period of three years.
Furthermore, the swap tenure will align with the ECB repayment schedule, subject to a maximum cap of five years.
To make foreign currency deposits more attractive, the RBI has exempted new FCNR(B) and NRE deposits from mandatory reserve requirements such as the Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR). This move will make mobilizing NRI deposits more profitable for banks, enabling them to offer better interest rates to customers.
Disclaimer: This content has been sourced and edited from Dainik Jagran. While we have made modifications for clarity and presentation, the original content belongs to its respective authors and website. We do not claim ownership of the content.
