Overview
- In early June the Reserve Bank of India reopened a special FCNR(B) swap facility and said it will absorb hedging costs for fresh three- to five-year deposits mobilised under the scheme through September 30, 2026 while exempting those deposits from CRR and SLR.
- Banks responded within days by lifting US dollar FCNR(B) rates across the board, with many large lenders offering around 6% and several smaller and mid-sized banks quoting rates above 7% on three- to five-year deposits.
- The RBI removed a ban on letters of credit and guarantees for these deposits, enabling NRIs to borrow offshore and use leverage to boost returns, and banks are seeking clarity on whether their overseas branches may themselves provide that leverage.
- Brokerages and bankers project large potential inflows, commonly cited in the $35–70 billion range, and RBI officials including Deputy Governor Rohit Jain have urged lenders to aggressively mobilise funds to strengthen forex reserves and support the rupee.
- Analysts warn of risks: the India–US rate gap is much smaller than in 2013 which limits arbitrage, leveraged positions face rollover and credit risk, and operational or legal gaps about overseas lending could complicate execution; the 2013 scheme brought roughly $34 billion and is the closest precedent.