RBI swap facility brings nearly ₹2 lakh crore in forex inflows since June
The Reserve Bank of India's concessional swap facility has attracted $20.72 billion in foreign exchange inflows as of July 17, translating to nearly ₹2 lakh crore
FCNR(B) deposits accounted for the largest share at $17.406 billion, followed by Overseas Foreign Currency Borrowings (OFCBs) at $1.97 billion and External Commercial Borrowings (ECBs) at $1.342 billion
The facility was announced on June 5 and operationalised from June 8, available for FCNR(B) deposits until September 30 and for OFCBs/ECBs until December 31
The measure forms part of RBI's effort to strengthen forex liquidity and support the rupee amid external sector pressures
FCNR(B) — Foreign Currency Non-Resident (Bank) Deposits
FCNR(B) is a deposit scheme that allows Non-Resident Indians (NRIs) to hold term deposits in foreign currency with Indian banks, insulating depositors from exchange rate risk since both principal and interest are denominated in the foreign currency itself. Banks raising FCNR(B) deposits then bear the currency risk when converting and deploying these funds domestically.
Key Details
- Deposits are typically in convertible currencies (USD, GBP, EUR, JPY etc.) with tenures ranging from 1 to 5 years
- Interest and principal are repatriable and exempt from Indian income tax for the NRI depositor
- Regulated by RBI under the Foreign Exchange Management Act (FEMA) master directions on deposits from non-residents
- Distinct from NRE (rupee-denominated, repatriable) and NRO (rupee-denominated, largely non-repatriable) accounts
The current swap facility works by allowing banks to swap the dollars raised through fresh FCNR(B) deposits with the RBI at a concessional (RBI-subsidised) rate, making it cheaper for banks to raise such deposits and pass on attractive returns to NRI depositors, thereby channelling foreign currency into India's reserves.
The RBI Swap Window as a Precedented Crisis-Response Tool (2013 Precedent)
This is not the first time RBI has used a concessional FCNR(B) swap window to defend the rupee. During the 2013 "taper tantrum" — when the US Federal Reserve signalled tapering its bond-buying programme, triggering capital outflows from emerging markets — RBI opened special swap windows in September 2013 offering banks a fixed concessional swap rate (around 3.5% p.a.) well below prevailing market cost.
Key Details
- The 2013 windows brought in about $34 billion in inflows, of which roughly $26 billion came through the FCNR(B) route alone, helping stabilise a sharply depreciating rupee
- The mechanism: banks sell the foreign currency raised via deposits to RBI for rupees at inception, and reverse the swap (buy back the foreign currency) at maturity at a pre-agreed, subsidised rate — RBI absorbs part of the hedging cost that banks would otherwise pass to depositors
- The 2026 facility revives this same crisis-era instrument, extending it to fresh ECBs and OFCBs in addition to FCNR(B) deposits
The current $20.72 billion inflow is being read against the 2013 benchmark of $34 billion, making this a recurring case study in how RBI uses targeted concessional swap windows (rather than direct reserve sales or rate hikes) to manage rupee volatility without tightening domestic liquidity.
External Sector Management and India's Forex Reserves Framework
RBI's forex interventions, including swap facilities, form part of its broader external sector stabilisation toolkit alongside spot/forward market intervention, forex reserve deployment, and interest rate differentials, aimed at smoothing excessive rupee volatility rather than defending a fixed exchange rate level (India follows a managed float regime).
Key Details
- India's exchange rate regime since 1993 is officially a "managed float" — RBI intervenes to curb volatility, not to peg the rupee at a fixed level
- Sources of forex reserve accretion include FDI/FPI inflows, ECBs, NRI deposits (FCNR(B)/NRE), and current account receipts (exports, remittances)
- Swap facilities directly and immediately augment usable forex reserves without RBI needing to sell dollars from existing reserves, distinguishing them from spot-market intervention
By channelling $20.72 billion into the banking system via concessional swaps rather than drawing down existing reserves, RBI is using a reserve-augmenting (rather than reserve-depleting) tool to support the rupee — a distinction UPSC often tests when comparing different central bank interventions.
- Total forex inflows under the facility (till July 17, 2026): $20.72 billion (~₹2 lakh crore)
- FCNR(B) deposits: $17.406 billion
- Overseas Foreign Currency Borrowings (OFCBs): $1.97 billion
- External Commercial Borrowings (ECBs): $1.342 billion
- Facility announced: June 5, 2026; operationalised: June 8, 2026
- Window validity: FCNR(B) deposits till September 30, 2026; OFCBs/ECBs till December 31, 2026
- 2013 precedent inflow (comparable historical benchmark): ~$34 billion via two special swap windows (~$26 billion via FCNR(B) route)