What India’s FCNR(B) Dollar Drive Means for Listed Banks

The RBI’s swap window has closed. The funding gain is real, but so are the risks left on bank balance sheets.

FCNR(B) is a bank deposit, not a government bond. The depositor’s claim sits on the bank, which carries the foreign-currency liability. In 2026, the Reserve Bank of India (RBI) offered banks a temporary dollar–rupee swap to attract more of these deposits. The window closed on August 31, 2026, after banks raised about US$133 billion (roughly ₹12.6 lakh crore at Rs.95 to $). [1] Since most large Indian banks are listed, how they handle this funding is a question for shareholders too.

Source: Bank of India, “FCNR Super Yield” promotional advertisement (bankofindia.bank.in).

What is an FCNR(B) deposit?

FCNR(B) stands for Foreign Currency Non-Resident (Bank). Eligible non-resident customers place a fixed-term deposit with an Indian bank in a foreign currency, and principal and interest are to be paid back in that same currency to the depositor.

The 2026 facility has covered fresh deposits of three to five years. Banks could sell the dollars to the RBI for rupees and buy them back later. Deposits had a one-year lock-in, and the swaps could not be cancelled. [2]

How the swap works

Say an NRI deposits US$100 million when the reference rate is ₹84 per dollar. The bank sells the dollars to the RBI for ₹840 crore and agrees to buy back the same amount at the same rate when the swap ends.

Source: Author’s illustration, based on Reserve Bank of India notifications on the FCNR(B) swap facility.

Without the swap, a weaker rupee makes repayment costlier. At ₹95, US$100 million would cost ₹950 crore. With the swap, the bank pays ₹840 crore. That ₹110 crore gap shows what the hedge is worth to the bank. It is not necessarily a ₹110 crore loss for the RBI, which holds the dollars meanwhile in a matched trade.

The cover is narrow. The RBI’s FAQ says the swap protects the principal only, not the interest, so banks must still find dollars to pay interest. [3] In short: the RBI gave a concessional, principal-only hedge. It did not guarantee bank profitability or take on every risk in the deposit.

What banks gain

FCNR(B) adds medium-term funding when domestic deposits are harder or costlier to raise, and the swap turns the dollars into rupees for lending. That eases the squeeze when loans grow faster than deposits. Much of the money came late: the total stood at $65.4 billion on August 21, and the RBI then advanced the window’s closure to August 31. [4] That shows strong mobilization. It does not show that the money will stay cheap or be renewed.

Who raised the most

Private banks led. ICICI Bank raised $17.9 billion, the most among Indian banks, while HDFC Bank raised $11.5 billion and Axis Bank $10.6 billion. [5], [6] SBI, the top public sector raiser, crossed its $10 billion target, and Bank of Baroda raised about $8 billion. [5] The latest category split, to July 30, shows the same tilt: private banks added $10.7 billion, public sector banks $8.8 billion and foreign banks $8.4 billion. [7] HSBC was the largest single gainer to that date.

What can go wrong

Cost. Banks may pay attractive rates to win deposits, and these must be weighed against the swap cost and what the funds earn. If the economics shift, renewal becomes less appealing.

Mismatch. A bank that owes dollars but earns rupees must still plan for interest payments, maturity dates, and any gap between the deposit and the assets it funds.

Renewal. Depositors are locked in for a year while the swap cannot be cancelled, and deposits mature in three to five years. If many choose not to renew together, banks must find replacement funding. This is a risk to monitor, not a forecast of crisis.

Dependence on temporary support. A special window can pull in a large flow quickly, but it does not ensure the same flow once it closes. Research finds that NRI deposits respond to interest-rate differentials and domestic monetary conditions. [8] Wider studies on dollar funding [9] and financial dollarization [10] offer general warnings, not evidence of a problem in India.

A useful tool, not a permanent fix

The drive brought a large pool of dollars into the system during a period of pressure. But the deposits are repayable, the window is shut, and future funding depends on markets and depositor choices.

So we should judge this dollar raise as a policy decision more than the quantum of amount raised. Can banks manage the currency and maturity profile? Does the funding hold up without exceptional support? Does India keep earning foreign exchange from durable sources? FCNR(B) buys funding and time. It does not replace steady export earnings or disciplined management of foreign-currency risk.

References

[1] ANI. (2026, September 21). Forex inflows under RBI swap facility rise to USD 143.6 billion (reporting the RBI press release of September 21, 2026). https://www.indiagazette.com/news/279322015/forex-inflows-under-rbi-swap-facility-rise-to-usd-1436-billion

[2] Reserve Bank of India. (2026, June 8). Swap Facility for FCNR (B) Deposits. Circular RBI/2026-27/99, FMOD.MAOG.No.S-56/01.06.016/2026-27.

[3] FCNR (B) swap facility covers only principal, excludes interest: RBI

[4] Press Information Bureau, Ministry of Finance, Government of India. (2026, August 24). RBI’s USD-INR Swap Facility Sparks Unprecedented Forex Inflows into India, Banks Raise USD 73 Billion in 11 Weeks.

[5] Business Standard. (2026, September 11). Nearly 50% FCNR(B) deposits are for 5-year tenure: RBI Governor Malhotra. https://www.business-standard.com/finance/news/nearly-50-of-fcnr-b-deposits-under-rbi-swap-have-five-year-tenure-guv-126091101308_1.html

[6] Zeebiz. (2026). Axis vs HDFC vs Kotak Mahindra: Which bank stock has highest upside after Q2 update? https://www.zeebiz.com/market-news/news-axis-vs-hdfc-vs-kotak-mahindra-which-bank-stock-has-highest-upside-after-q2-update-403410

[7] Business Today. (2026, August 4). HSBC tops FCNR(B) mobilisation under RBI swap window; SBI, ICICI among biggest gainers (data from RBI and Ministry of Finance). https://www.businesstoday.in/nri/invest/story/hsbc-tops-fcnrb-mobilisation-under-rbi-swap-window-sbi-icici-among-biggest-gainers-547102-2026-08-04

[8] Kumar, V., Arora, P. K., Kaushik, A., & Kumar, P. (2026). Domestic monetary policy and non-resident Indian (NRI) deposits to India: An empirical analysis. Journal of Economic and Administrative Sciences. https://doi.org/10.1108/JEAS-01-2025-0015

[9] Barajas, A., Deghi, A., Raddatz, C., Seneviratne, D., Xie, P., & Xu, Y. (2020). Global Banks’ Dollar Funding: A Source of Financial Vulnerability. IMF Working Paper WP/20/113. https://www.imf.org/en/Publications/WP/Issues/2020/07/03/Global-Banks-Dollar-Funding-A-Source-of-Financial-Vulnerability-49525

[10] Christiano, L., Dalgic, H., & Nurbekyan, A. (2021, revised 2022). Financial Dollarization: Efficient Intranational Risk Sharing or a Prescription for Disaster? NBER Working Paper No. 29034. https://www.nber.org/papers/w29034

[11] Kushwaha, D. S. (2026). The Race to Capture Foreign Currency Via FCNR(B) Deposits. International Journal of Creative and Open Research in Engineering and Management, 2(6). https://doi.org/10.55041/ijcope.v2i6.179