The Reserve Bank of India’s special FCNR(B) deposit and dollar-rupee swap strategy has emerged as one of the most closely watched moves in India’s foreign-exchange market this year.

The objective was straightforward: attract more foreign-currency deposits from non-resident Indians, bring much-needed dollars into the banking system and strengthen India’s foreign-exchange buffers at a time when the rupee was facing pressure.

The scale of the response has been striking. By late August, banks had raised more than $65 billion through FCNR(B) deposits under the special scheme, according to Reuters. The broader package of measures had mobilised more than $70 billion in foreign currency.

For the RBI, that makes the exercise look like a significant strategic success.

What are FCNR(B) deposits?

FCNR(B) stands for Foreign Currency Non-Resident (Bank) deposits.

These are term deposits that eligible non-resident Indians can hold in specified foreign currencies rather than in Indian rupees. One of their key attractions is that the depositor retains exposure to the foreign currency instead of taking the same direct rupee risk associated with a conventional rupee deposit.

For banks, however, raising large quantities of foreign-currency deposits creates a different challenge: they have to manage the currency and funding risks associated with those dollars.

That is where the RBI’s swap facility became important.

How did the RBI’s swap strategy work?

The basic mechanism was relatively simple.

Banks could raise foreign currency through eligible FCNR(B) deposits and then use the RBI’s dollar-rupee swap facility. In effect, the RBI provided rupees to the banks against the foreign currency, while the transaction was structured to be reversed later.

This allowed banks to convert the foreign-currency funding into rupee liquidity while giving the central bank access to the incoming dollars.

The arrangement was particularly attractive because the RBI offered the swaps on favourable terms, encouraging banks to aggressively mobilise deposits from overseas customers.

The special facility was designed for FCNR(B) deposits with maturities of three to five years, helping India attract relatively stable foreign-currency funding rather than relying only on short-term flows.

Why was the RBI interested in so many dollars?

The timing matters.

India’s external sector has faced pressure from a combination of factors, including a weaker rupee, elevated energy costs and global uncertainty. A large and reliable foreign-exchange reserve provides the RBI with greater capacity to manage periods of market stress.

The influx generated by the FCNR(B) programme therefore serves several purposes.

First, it adds to India’s foreign-currency resources.

Second, it gives the RBI greater flexibility in managing excessive volatility in the rupee.

Third, it provides banks with foreign-currency funding that can subsequently be transformed into rupee liquidity.

India’s foreign-exchange reserves had climbed to about $692.9 billion by July 31, with the RBI’s FCNR(B) initiative contributing significantly to the increase.

That is a substantial strategic benefit at a time when import payments—particularly for crude oil—make a deep pool of dollars essential.

The biggest winner may be the RBI’s balance sheet

One reason the scheme stands out is that the RBI did not simply try to defend the rupee by selling dollars from its reserves.

Instead, it encouraged banks to bring fresh foreign currency into India.

That distinction is important.

If a central bank repeatedly sells dollars to support its currency, its reserves can fall. The FCNR(B) strategy works in the opposite direction: it attracts additional dollars into the financial system.

The RBI can then use those flows to strengthen its reserve position and improve its ability to respond to future external shocks.

That is why the scheme has been described as a strategic success rather than simply another deposit campaign.

What did NRIs get from the arrangement?

For non-resident depositors, the attraction was largely the higher interest rates banks were able to offer under the special framework.

Banks competed aggressively for overseas dollar deposits, with some offering unusually attractive rates compared with ordinary foreign-currency deposits.

For an NRI already holding dollars, an FCNR(B) deposit can provide an opportunity to earn interest while keeping the principal denominated in a foreign currency.

However, the actual return depends on the currency, deposit rate, bank, maturity and the individual’s tax and financial circumstances.

The scheme should therefore not be viewed as a risk-free way of maximising returns.

Why the scheme has been so successful

The numbers suggest that the RBI managed to align the interests of several participants.

NRIs received attractive deposit opportunities.

Banks gained access to foreign-currency funding and could use the RBI swap facility to manage the associated currency position.

The RBI gained additional dollars and greater foreign-exchange flexibility.

The Indian economy benefited from a stronger external liquidity cushion.

That alignment is perhaps the most impressive feature of the strategy.

Instead of relying on a single intervention, the RBI created incentives that encouraged banks and overseas depositors to do much of the mobilisation themselves.

But there is no free lunch

The success of the scheme does not mean there are no costs.

The deposits eventually have to mature, and the associated foreign-currency obligations remain. Banks also have to manage rollover and hedging risks.

The RBI’s large-scale provision of rupee liquidity through swaps can also create excess liquidity in the domestic banking system.

Indeed, Reuters reported that the surge in FCNR(B)-related liquidity had contributed to a substantial surplus in the banking system, raising expectations that the RBI could use other tools to absorb excess liquidity.

That is an important reminder: attracting dollars solves one problem while potentially creating another.

The RBI therefore has to balance foreign-exchange accumulation with domestic liquidity management.

The scheme is already changing the market

The scale of the inflows has been large enough to influence short-term currency and money-market conditions.

Reuters reported in late August that the RBI gave banks additional flexibility to conduct dollar-rupee swaps for FCNR(B) deposits above $100 million outside their normal weekly window, helping banks manage the surge in foreign-currency inflows as the special deposit window approached its deadline.

That move illustrates how quickly the programme grew.

What began as a targeted measure to attract overseas dollars became large enough that the central bank had to adjust operational flexibility to help banks absorb the flows smoothly.

Why this could be called a winner

Calling the RBI’s strategy a “winner” does not mean it has eliminated India’s external vulnerabilities.

It means the policy appears to have achieved its immediate objective exceptionally well: mobilising foreign currency at scale while giving banks a mechanism to manage the resulting currency exposure.

More than $65 billion of FCNR(B) deposits attracted under the programme is a powerful response.

The real test, however, will come later.

India will have to manage the eventual maturity and repayment of these deposits, while the RBI will need to balance reserves, liquidity, interest rates and currency stability.

For now, though, the FCNR(B) strategy demonstrates an important lesson in central-bank policy: sometimes the most effective intervention is not to spend reserves defending a currency, but to design incentives that bring fresh reserves into the country in the first place.

That is what makes the RBI’s latest FCNR(B) strategy particularly notable—and potentially one of the more innovative pieces of India’s 2026 external-sector policy.

Disclaimer: This article is for informational and educational purposes only and does not constitute financial, investment, banking or tax advice. FCNR(B) deposits, foreign-exchange transactions and related products carry their own terms, risks and eligibility requirements. Policy conditions and market circumstances can change, so readers should consult their bank, the RBI and a qualified financial professional before making decisions involving foreign-currency deposits.

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