The Reserve Bank of India (RBI) has announced a series of foreign exchange measures aimed at attracting overseas capital, strengthening foreign exchange reserves, supporting the rupee, and improving liquidity in the banking system. The move has already sparked a rally in banking stocks, with the Bank Nifty gaining more than 1% as investors welcomed the policy changes.
At the heart of the announcement is a special USD-INR forex swap facility for Foreign Currency Non-Resident (Bank) deposits, or FCNR(B) deposits, and External Commercial Borrowings (ECBs). The facility is designed to make foreign currency fund-raising cheaper and more attractive for banks and public sector entities.
FCNR(B) deposits are fixed deposits maintained by Non-Resident Indians (NRIs) in foreign currencies such as US Dollars, British Pounds, Euros, and Japanese Yen. These deposits allow NRIs to earn interest without taking Indian rupee depreciation risk.
Traditionally, banks accepting such deposits had to bear significant hedging costs to protect themselves against currency fluctuations. These costs often reduced the attractiveness of mobilising foreign currency deposits.
Under the new scheme, banks can raise fresh FCNR(B) deposits with maturities between three and five years and swap the foreign currency with the RBI at highly concessional rates.
The RBI will effectively absorb a large portion of the hedging cost, making it significantly cheaper for banks to attract dollar deposits from overseas investors and NRIs.
The central bank has also introduced a concessional swap window for eligible External Commercial Borrowings (ECBs) and overseas foreign currency borrowings by banks. The swap facility for ECBs will be available at a fixed cost of 1.5% per annum.
Additionally, these deposits will enjoy exemptions from certain regulatory requirements, providing banks with greater flexibility in managing their balance sheets.
The global financial environment has become increasingly volatile due to geopolitical tensions, fluctuations in oil prices, and uncertainty in international capital flows.
The RBI's objective is straightforward:
Market participants estimate that the combined impact of these measures could bring in $35-50 billion of additional foreign currency inflows during FY27.
Yes. The most famous example was in 2013 when the RBI, under then Governor Raghuram Rajan, launched a special FCNR(B) deposit scheme during the "Taper Tantrum" crisis.
At that time, global investors were pulling money out of emerging markets, causing severe pressure on the Indian rupee. The rupee had fallen sharply, and foreign exchange reserves were under stress.
The 2013 FCNR(B) scheme was highly successful and attracted approximately $26 billion in foreign currency deposits, helping stabilise the rupee and restore investor confidence.
The current initiative is widely being compared to that programme because both schemes share a common goal: attracting foreign currency inflows without aggressively raising domestic interest rates.
Banks are among the biggest beneficiaries of the new policy.
Benefits include:
This is one of the primary reasons banking stocks witnessed strong buying immediately after the announcement.
For equity investors, the policy is a positive signal for the banking and financial services sector.
A stronger inflow of foreign currency can:
Sectors that are sensitive to interest rates and liquidity, such as banking, financial services, infrastructure, and capital goods, could benefit the most.
The RBI's latest forex measures represent one of the most significant external-sector initiatives in recent years. By reducing the cost of attracting foreign currency deposits and overseas borrowings, the central bank is attempting to strengthen India's financial position while supporting economic growth.
While the scheme echoes the successful FCNR(B) programme of 2013, it has been adapted for today's market conditions. If inflows materialise as expected, the move could help stabilise the rupee, boost liquidity, and provide a meaningful tailwind for India's banking sector and broader financial markets.