FCNR-B deposits: Economic benefits outweigh hedging costs, says Sanjay Malhotra

The Reserve Bank of India is weighing the broader economic gains from foreign-currency deposits against the cost it bears to hedge the associated currency risk, Governor Sanjay Malhotra said on October 7.

Malhotra defended the rationale behind the now-closed special facility for Foreign Currency Non-Resident (Bank), or FCNR(B), deposits, saying the central bank’s primary consideration was the overall benefit to the economy rather than the hedging expense involved.

The RBI had introduced the special USD-INR forex swap facility on June 8, 2026, as part of efforts to strengthen foreign exchange reserves and support balance of payments conditions. The facility allowed banks to offer higher interest rates on FCNR(B) deposits by transferring the currency hedging cost to the central bank.


The facility for FCNR(B) deposits remained open until August 31. As of that date, banks had mobilised USD 133 billion through the scheme.

Also read | Govt tightens sugar inventory norms to keep prices under check ahead of festive season

Analysts had estimated the RBI’s annual hedging cost at around 2.8-3.0%, while questions had also been raised over whether the economic gains justified the expense.

Speaking at the post-monetary policy press conference, Malhotra said the cost to the RBI should be assessed alongside the wider benefits generated by the scheme.

Under the arrangement, participating banks sold US dollars to the RBI and entered into an agreement to repurchase the same amount at the end of the swap period. Transactions were conducted in multiples of USD 1 million.

The swap carried a fixed rate of 1.5% per annum, compounded semi-annually. In the first leg, banks sold dollars to the RBI at the FBIL Reference Rate, with settlement taking place on a spot basis. At maturity, banks were required to return the rupee funds along with the swap premium to receive the dollars back.

FCNR(B) accounts are foreign-currency term deposits held by non-resident Indians.

Also read | RBI still assessing revolving credit norms: Sanjay Malhotra

The special facility also covers Overseas Foreign Currency Borrowings (OFCB) and External Commercial Borrowings (ECBs). While the window for FCNR(B) deposits closed on August 31, the facility for ECBs and OFCBs will remain available until December 31, 2026.

Malhotra said the repayment risks linked to FCNR(B) deposits remained manageable, citing strong macroeconomic fundamentals and adequate foreign exchange reserves as buffers.

He described the recent pressure on the current account and the moderation in external flows as temporary, adding that he expected the external sector to improve sooner than later.