FCNR(B) Deposit Drive: Banks Eye USD 40 Billion Inflows
Why in the news
After RBI offered to absorb the hedging cost, the Centre will urge banks to chase FCNR(B) deposits aggressively, using local and overseas branches in mission mode to reach NRI and OCI customers.
Key facts
- Estimate: up to USD 40 billion from FCNR(B); USD 50 to 60 billion overall with the PSU concessional swap, per PNB MD Ashok Chandra.
- Window: fresh 3- to 5-year deposits, support valid till 30 September 2026.
- Past precedent: a similar swap window in 2013, during the taper tantrum, brought in about USD 30 billion.
- Why now: a weak rupee, blamed on portfolio money exiting, costlier crude and the West Asia conflict.
About FCNR(B)
| Feature | Detail |
|---|---|
| Full form | Foreign Currency Non-Resident (Bank) |
| Type | Term deposit held in India, in foreign currency |
| Who can open | NRIs, PIOs and OCIs |
| Currencies | USD, GBP, EUR, JPY, AUD, CAD and others RBI permits |
| Tenure | 1 to 5 years; current swap window is 3 to 5 years |
| Tax | Interest exempt from tax in India |
| Liability | Bank-level, not sovereign borrowing |
Why RBI bears the hedging cost
- Banks must hedge because they repay in dollars after 3 to 5 years but use funds in rupees meanwhile.
- The hedging cost, about 3 per cent, normally cuts into the bank’s spread.
- Absorbing it lets banks offer attractive rates to NRIs and stay profitable.
Impact on the rupee
- Dollar deposits lift forex reserves and dollar supply, tending to strengthen the rupee.
- It gives RBI more room to intervene in the forex market.
- It is a non-debt-creating flow and does not add to external sovereign debt.
Exam angle
- CRR is currently 3.0 per cent and SLR 18.0 per cent.
- FCNR(B) deposits are exempt from CRR and SLR requirements.
- Related terms: AD banks, Net Interest Margin, forex swap, ECBs.