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Indian banks mobilised more than $127 billion through FCNR(B) deposits under a special RBI swap facility; with the window now closed, attention has turned to who bears the exchange risk.
The RBI introduced the special US dollar-rupee swap facility in June 2026, amid pressure on the rupee from high oil prices and the need to strengthen reserves during the West Asia conflict.
Against an initial target of around $50 billion, mobilisation crossed $127 billion, and the RBI closed the FCNR(B) window on 31 August 2026, ahead of the original schedule.
Under the swap, the RBI shields banks from exchange risk on the principal and bears the hedging cost, estimated at up to 3% a year; banks must arrange dollars for interest payments themselves.
By 7 August 2026 the RBI had recouped $31.2 billion of foreign currency assets, about 55% of what had been mobilised at that point.
A bank hands the central bank dollars now and takes rupees, with an agreement to reverse the exchange at a pre-agreed rate later. Fixing the future rate today removes the bank's exposure to how the rupee moves in the meantime.
Simple Analogy: Locking tomorrow's exchange rate today.
| Component | Who bears the exchange risk | Cost implication |
|---|---|---|
| Principal | The RBI, through the swap arrangement | The RBI absorbs the hedging cost, estimated at up to 3% a year |
| Interest | The commercial bank | The bank must source dollars for interest payments and hedge that exposure itself |
| The depositor (NRI) | None - the deposit is denominated in foreign currency | Principal and interest are both paid in the foreign currency |
General Awareness > NRI deposit schemes, foreign exchange reserves, RBI operations
GS Paper III > Indian economy - external sector, mobilisation of resources, balance of payments
General Awareness > Economy and banking current affairs
Which of the following best describes the term 'import cover', sometimes seen in the news?
Answer: It is the number of months of imports that could be paid for by a country's international reserves
Foreign Currency Non-Resident (Bank) term deposit, held by an NRI with an Indian bank in foreign currency, with principal and interest both in that currency
An arrangement to exchange currencies now and reverse the exchange later at a pre-agreed rate, removing exposure to intervening rate movement
The price of eliminating exchange rate exposure - here estimated at up to 3% a year, borne by the RBI on the principal
The largest component of India's foreign exchange reserves, held in foreign currency instruments