{"id":115257,"date":"2026-07-26T10:36:04","date_gmt":"2026-07-26T05:06:04","guid":{"rendered":"https:\/\/vajiramandravi.com\/current-affairs\/?p=115257"},"modified":"2026-07-26T12:48:49","modified_gmt":"2026-07-26T07:18:49","slug":"fcnrb-deposits-upsc","status":"publish","type":"post","link":"https:\/\/vajiramandravi.com\/current-affairs\/fcnrb-deposits-upsc\/","title":{"rendered":"FCNR(B) Deposits &#8211; India&#8217;s Strategic Tool for Forex Stability Amid Global Uncertainty"},"content":{"rendered":"<h2 style=\"text-align: justify;\"><b>FCNR(B) Deposits Latest News<\/b><\/h2>\n<ul style=\"text-align: justify;\">\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">The Reserve Bank of India (RBI) has revived the Foreign Currency Non-Resident (Bank) [FCNR(B)] <\/span><b>concessional swap<\/b><span style=\"font-weight: 400;\"> window until September 30, 2026 to attract foreign currency deposits from the Indian diaspora.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">The move aims to <\/span><b>strengthen <\/b><span style=\"font-weight: 400;\">India&#8217;s foreign exchange <\/span><b>reserves<\/b><span style=\"font-weight: 400;\">, stabilise the rupee amid volatile global financial conditions, and cushion the economy against external shocks.<\/span><\/li>\n<\/ul>\n<h2 style=\"text-align: justify;\"><b>FCNR(B) Deposits<\/b><\/h2>\n<ul style=\"text-align: justify;\">\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">FCNR(B) deposits, introduced in <\/span><b>1993<\/b><span style=\"font-weight: 400;\">, are foreign currency term deposits maintained by Non-Resident Indians (NRIs), Persons of Indian Origin (PIOs), and Overseas Citizens of India (OCIs) with Indian banks.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Deposits are maintained in designated foreign currencies such as &#8211; US Dollar (USD), Pound Sterling (GBP), Euro (EUR), Japanese Yen (JPY), Australian Dollar (AUD), and Canadian Dollar (CAD).<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Both principal and interest remain denominated in foreign currency, insulating depositors from rupee depreciation risk.<\/span><\/li>\n<\/ul>\n<h2 style=\"text-align: justify;\"><b>Reasons Behind the RBI Reviving the FCNR(B) Swap Window<\/b><\/h2>\n<ul style=\"text-align: justify;\">\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">The revival comes amid &#8211;<\/span>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">Rising geopolitical tensions.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">Volatile global capital flows.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">Persistent inflation and uncertain global interest-rate cycles.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">Depreciation of the rupee (around <\/span><b>12% year-on-year<\/b><span style=\"font-weight: 400;\"> against the US Dollar as of July 22, 2026).<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">Declining Foreign Direct Investment (FDI).<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">Large Foreign Portfolio Investor (FPI) outflows, with withdrawals of <\/span><b>\u20b92.87 lakh crore<\/b><span style=\"font-weight: 400;\"> (January\u2013early June 2026), exceeding the entire FY2025 outflows.<\/span><\/li>\n<\/ul>\n<\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">The objective is to build forex reserves, <\/span><b>reduce <\/b><span style=\"font-weight: 400;\">external <\/span><b>vulnerabilities<\/b><span style=\"font-weight: 400;\">, stabilise the exchange rate, and enhance confidence in India&#8217;s macroeconomic fundamentals.<\/span><\/li>\n<\/ul>\n<h2 style=\"text-align: justify;\"><b>Key Features of the 2026 FCNR(B) Scheme<\/b><\/h2>\n<ul>\n<li aria-level=\"1\"><b>Concessional swap facility:<\/b>\n<ul>\n<li><span style=\"font-weight: 400;\">RBI offers banks a concessional foreign exchange swap facility for FCNR(B) deposits with 3\u20135 year maturities.<\/span><\/li>\n<li><span style=\"font-weight: 400;\">Banks benefit from significantly lower hedging costs, approximately 3% below prevailing FX swap rates.<\/span><\/li>\n<\/ul>\n<\/li>\n<li aria-level=\"1\"><b>Higher interest rates:<\/b>\n<ul>\n<li><span style=\"font-weight: 400;\">Banks can offer<\/span><b> attractive returns<\/b><span style=\"font-weight: 400;\">, for example, large banks around 6%, and smaller\/private banks up to 7.1%.<\/span><\/li>\n<li><span style=\"font-weight: 400;\">These rates exceed returns on relatively risk-free US Treasury securities (4\u20134.4%), making FCNR(B) deposits more attractive.<\/span><\/li>\n<\/ul>\n<\/li>\n<li><b>Targeted mobilisation: <\/b><span style=\"font-weight: 400;\">RBI aims to mobilise USD 50\u201370 billion.<\/span><\/li>\n<li><b>Strong initial response:<\/b><\/li>\n<li style=\"list-style-type: none;\">\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">Total foreign currency mobilisation has reached USD 20.72 billion.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">USD 17.4 billion (84%) has come through FCNR(B) deposits alone, making it the dominant source of inflows.<\/span><\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<h2 style=\"text-align: justify;\"><b>Importance of the FCNR(B) Deposits<\/b><\/h2>\n<ul style=\"text-align: justify;\">\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Compared to volatile portfolio investments, FCNR(B) deposits &#8211;<\/span>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">Provide relatively <\/span><b>stable <\/b><span style=\"font-weight: 400;\">medium-term foreign currency resources.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">Strengthen India&#8217;s external financing position.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">Help<\/span><b> defend the rupee<\/b><span style=\"font-weight: 400;\"> during periods of market stress.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">Improve forex reserve adequacy.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">Reduce dependence on volatile short-term capital flows.<\/span><\/li>\n<\/ul>\n<\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Reuters also reported that the RBI has used part of these inflows to unwind a portion of its large forex forward book, improving <\/span><b>reserve management<\/b><span style=\"font-weight: 400;\">.<\/span><\/li>\n<\/ul>\n<h2 style=\"text-align: justify;\"><b>Historical Evolution of India\u2019s Forex Mobilisation<\/b><\/h2>\n<ul>\n<li><span style=\"font-weight: 400;\">India has previously relied on diaspora resources during external stress.<\/span><\/li>\n<li><b>For example,<\/b><\/li>\n<li style=\"list-style-type: none;\">\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><b>1998<\/b><span style=\"font-weight: 400;\">: RIBs (Resurgent India Bonds) instrument raises forex after Pokhran-II sanctions.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><b>2000<\/b><span style=\"font-weight: 400;\">: India Millennium Deposits (IMDs) strengthens reserves following sanctions and the dot-com slowdown.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><b>2013<\/b><span style=\"font-weight: 400;\">: FCNR(B) Special Scheme counters the &#8220;Taper Tantrum&#8221;; and mobilised nearly USD 34 billion.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><b>2026<\/b><span style=\"font-weight: 400;\">: FCNR(B) revival<\/span> <span style=\"font-weight: 400;\">to build precautionary buffers against geopolitical and financial uncertainty.<\/span><\/li>\n<\/ul>\n<\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Unlike earlier episodes, the current initiative is <\/span><b>preventive <\/b><span style=\"font-weight: 400;\">rather than crisis-driven. <\/span><b>For example, <\/b><span style=\"font-weight: 400;\">India&#8217;s external position is considerably stronger than during previous crises &#8211;<\/span>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">Forex reserves exceed USD 650 billion.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">No Balance of Payments (BoP) crisis.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">Investment-grade macroeconomic fundamentals.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">Strong external sector resilience.<\/span><\/li>\n<\/ul>\n<\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Therefore, the current mobilisation seeks to create <\/span><b>additional buffers <\/b><span style=\"font-weight: 400;\">rather than address an immediate liquidity crisis.<\/span><\/li>\n<\/ul>\n<h2 style=\"text-align: justify;\"><b>Challenges and Risks<\/b><\/h2>\n<ul>\n<li><b>Rising external liabilities: <\/b><span style=\"font-weight: 400;\">Higher FCNR(B) mobilisation increases India&#8217;s external debt obligations, requiring prudent management.<\/span><\/li>\n<li><b>Dependence on remittances:<\/b>\n<ul>\n<li><span style=\"font-weight: 400;\">Nearly 50% of India&#8217;s inward remittances originate from West Asia.\u00a0<\/span><\/li>\n<li><span style=\"font-weight: 400;\">Persistent regional instability, labour nationalisation policies, slowing recruitment of expatriates, and oil-price volatility could moderate remittance growth.<\/span><\/li>\n<\/ul>\n<\/li>\n<li><b>Global competition: <\/b><span style=\"font-weight: 400;\">Banks in the UAE and other Gulf countries are offering attractive US Dollar deposit rates, making it harder for Indian banks to compete for NRI deposits.<\/span><\/li>\n<li><b>Elevated global interest rates:\u00a0<\/b><\/li>\n<li style=\"list-style-type: none;\">\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">If US interest rates remain high, investors may prefer &#8211; US Treasury securities, global money market funds, and dollar-denominated bonds.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">This could reduce the relative attractiveness of FCNR(B) deposits.<\/span><\/li>\n<\/ul>\n<\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Banking constraints<\/b><span style=\"font-weight: 400;\">: Many small and mid-sized Indian banks lack overseas branches or a presence in<\/span><b> GIFT City<\/b><span style=\"font-weight: 400;\">, compelling them to collaborate with larger banks to extend FCNR(B) benefits to NRI customers.<\/span><\/li>\n<\/ul>\n<h2 style=\"text-align: justify;\"><b>Conclusion<\/b><\/h2>\n<ul style=\"text-align: justify;\">\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">The FCNR(B) scheme demonstrates India&#8217;s ability to leverage its large global diaspora as a strategic source of foreign currency.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">While it strengthens forex reserves and enhances exchange-rate stability, sustained success will depend on<\/span><b> maintaining competitive returns<\/b><span style=\"font-weight: 400;\">, managing external liabilities prudently, and navigating global geopolitical and financial uncertainties.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">The initiative reflects a shift from crisis management to precautionary macroeconomic resilience-building.<\/span><\/li>\n<\/ul>\n<p style=\"text-align: justify;\"><b>Source: <\/b><a href=\"https:\/\/www.pressreader.com\/foryou?popupArticleId=282153593061836\" target=\"_blank\" rel=\"nofollow noopener\"><b>TH<\/b><\/a><\/p>\n","protected":false},"excerpt":{"rendered":"<p>RBI has extended the FCNR(B) concessional swap window until Sept. 30, 2026, to attract foreign currency deposits from NRIs.<\/p>\n","protected":false},"author":19,"featured_media":115274,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[18],"tags":[8048,60,22,59],"class_list":["post-115257","post","type-post","status-publish","format-standard","has-post-thumbnail","category-upsc-mains-current-affairs","tag-fcnrb-deposits","tag-mains-articles","tag-upsc-current-affairs","tag-upsc-mains-current-affairs-tag","no-featured-image-padding"],"acf":[],"_links":{"self":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/posts\/115257","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/users\/19"}],"replies":[{"embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/comments?post=115257"}],"version-history":[{"count":5,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/posts\/115257\/revisions"}],"predecessor-version":[{"id":115276,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/posts\/115257\/revisions\/115276"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/media\/115274"}],"wp:attachment":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/media?parent=115257"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/categories?post=115257"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/tags?post=115257"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}