RBI Revives 2013 FCNR(B) Scheme, Eyes Up to $50 Billion in Foreign Inflows to Boost Rupee and External Stability

Key Points Summary

· The Reserve Bank of India (RBI) has revived the FCNR(B) Swap Scheme, a measure first used during the 2013 taper tantrum crisis.

· The scheme encourages banks to raise Foreign Currency Non-Resident (Bank) [FCNR(B)] deposits from overseas Indians by reducing exchange-rate risk.

· In 2013, the scheme attracted about $26 billion in foreign inflows and helped stabilize the rupee.

· Economists estimate that the revived scheme could bring in around $50 billion in inflows, with total recent measures potentially attracting up to $100 billion over the next 12–24 months.

· Unlike 2013, when RBI provided a 3.5% subsidy, the central bank will now fully bear the exchange-rate risk on eligible deposits raised until September 30.

· Banks may be able to offer more attractive interest rates on FCNR(B) deposits, making them appealing to overseas investors and NRIs.

· Increased foreign inflows are expected to support the rupee, improve investor confidence, and strengthen India's external position.

· A stronger rupee could lower India's import costs, generating significant savings given the country's large import bill.

· The move comes alongside other measures, including tax relief for foreign investors in government bonds.

· Economists believe the combined package could transform expectations from a Balance of Payments (BoP) deficit to a near-balanced or surplus position.

[ABS News Service/16.06.2026]

SOMETIMES, The worst ideas are the best.

Speaking in august 2016, just before his term as Governor of the Reserve bank of India (RBI) was to end, Raghuram Rajan said there were multiple ideas the authorities were considering to attract foreign money in August-September 2013 amid the taper tantrums caused by the speculation around tightening of monetary policy by the US Federal Reserve. “However, there was one that i found completely idiotic. i thought this was a terrible, terrible thing to do.”

That idea was the swap scheme for banks’ Foreign Currency non-resident (bank) deposits, or FCNR(B) deposits: banks would get a 3.5% subsidy on the foreign funds they raised through these deposits. This allowed banks to offer attractive interest rates to those abroad and the facility ended up being wildly successful, resulting in an inflow of $26 billion and helping turn around investor confidence in the rupee and India.

But it was not always clear it would do the job. in fact, not only did Rajan think it was “idiotic” and “terrible”, but a clever suggestion from bankers to get the RBI to pay for the exchange rate risk these deposits entailed. Such were his misgivings that he even asked the outgoing Governor, Dr Subbarao, to announce the swap scheme before his exit on September 4, 2013.

“The morning that i was going to take over, I went to Dr Subbarao and said ‘would you like to announce it?’ he was gracious enough at that point to say ‘no, you go ahead’. and now I get the credit for that idea which actually i neither invented nor actually believed in,” Rajan said in august 2016.

Now, nearly 13 years later, the FCNR(B) swap scheme is back. and while the removal of the capital gains tax on Foreign institutional investors’ (FIIs) investments in government bonds as well the withholding tax has captured much of the imagination, it is this swap scheme that will do much of the heavy lifting when it comes to bringing in foreign inflows.

“… The same scheme mobilised $26 billion of flows in 2013, and that was 1.4% of GDP in that year (FY14). we believe a similar quantum may be raised this time, and that translates to roughly $50 billion of flows,” ICICI Securities Primary dealership economists led by a Prasanna said in a note on June 7, adding that they expect around $100 billion of inflows over a period of 1224 months from all the measures that were announced on June 5 by the government and the Rbi. The FCNR(B) swap scheme is even more potent this time around. in 2013, the Rbi provided a 3.5% subsidy to banks. now, it will fully bear the exchange rate risk on new 3-5 year deposits mobilised till September 30.

“Current FCNR (b) Rate is 3.35% (3 years). Presently cost of hedging, forward premium is 3.5%. Current Card rate for a 3-year deposit is 6.5%. banks can thus offer attractive FCNR (b) pricing in the range of 5.5% and upwards (US treasury rates at 4% of equivalent duration). Taking an annual hedging cost at 2.5%, the total outgo comes to 12.5% for a 5-year tenor, implying $125 million cost embedded per billion (dollars) raised,” Soumya kanti ghosh, group Chief economic adviser at SBI, said on June 5.

It is this estimated $125 million cost (this time around) that changed Rajan and the RBI’s thinking back in 2013. The cost of hedging for the RBI is high only if a lot of money comes in — but if a lot of money does come in, the rupee would appreciate. and a stronger rupee would not only reduce the hedging cost for the RBI but also reduce India’s import bill.

“Think of having a stronger currency relative to an undervalued rate of about Rs 3-4, multiply it by $400 billion in imports. That would mean Rs 1.6 trillion in savings (per year) if we only stabilise the currency,” Rajan had remarked.

The savings from a stronger rupee would be much greater now considering India’s import bill in 2025-26 was $775 billion.

The government and the RBI have blown the steps taken in 2013 out of the water and delivered a ‘balance of Payments (bop) package’ that has exceeded market expectations; so much so that economists now expect India to have a surplus or near-zero bop from earlier expectations of a deficit of around $60 billion and even higher in some cases.