The foreign currency non-resident (bank) or FCNR(B) scheme closed in August 2026 after achieving a bumper accretion of $127.23 billion, with flows almost doubling in the last 10 days of the scheme. According to the latest RBI data, this brought total inflows from such special schemes to $136.38 billion, exceeding the RBI's initial estimate of $80 billion. The scheme was launched on June 8, 2026 to boost dollar inflows and strengthen foreign exchange reserves, allowing banks to swap eligible overseas borrowings with the central bank at concessional rates. However, economists now warn that the Reserve Bank of India faces a potential ₹1.2 trillion ($10.6 billion) hedging cost over five years due to the central bank's decision to shield banks from currency risk on the funds raised overseas. The RBI closed the facility a month ahead of schedule on August 31, 2026, aiming to cap dollar inflows that have already outpaced the $26 billion raised in 2013 when RBI Governor Raghuram Rajan launched a similar swap scheme.
According to bankers' estimates, 80% of the total $127.23 billion mobilised by Non-Resident Indians under the special FCNR(B) deposit scheme came through the leverage route, with more than two-thirds parked in the five-year tenor. A senior executive at a large public sector bank confirmed that around 80% of the funds mobilised came through this mechanism, where banks extended loans to NRIs on the condition that proceeds were redeployed in FCNR(B) deposits. The non-leveraged and non-SBLC-backed component accounted for less than 10% of total inflows, while SBLC-backed deposits accounted for another 10-12%. As per The Hindu BusinessLine, the leverage was the key driver of inflows, with most NRIs opting for the maximum five-year tenure to earn higher returns over a longer period. The average leverage ratio was around nine times, though market discussions included leverage levels as high as 19 times, reportedly linked to a British bank. Financial commentator Manoj Arora highlighted that NRIs could earn nearly 7% on US dollar deposits while using money borrowed from Indian banks, allowing them to increase their returns by borrowing against their initial FCNR(B) deposits and putting the borrowed money into more deposits.
GIFT IFSC banking units have emerged as a significant player in India's foreign-currency mobilisation, with $52.82 billion of the total $127.23 billion FCNR(B) deposits being disbursed through their channels. As per IFSCA data, 20 IFSC Banking Units had sanctioned $54.02 billion under the RBI's special swap facility for FCNR(B) deposits, with $52.82 billion disbursed as of August 31, 2026. Uday Kotak, founder of Kotak Mahindra Bank, highlighted that this performance signifies GIFT's emergence as a growing International Financial Centre. The IBUs also disbursed $11.62 billion through External Commercial Borrowings (ECBs) between April and August 2026, with monthly ECB disbursements increasing from $1.54 billion in April to $3.54 billion in August. During the same period, Indian banks raised $11.12 billion through bond listings on IFSC exchanges, including $9.17 billion during July and August. More than two-thirds of the deposits were for five years, with most of the money coming from non-US markets, including West Asia, Europe and parts of Africa, according to bankers.
The potential cost stems from the Reserve Bank's decision to shield banks from currency risk on the funds they raised overseas. According to Mint, the RBI agreed to protect banks through a favorable swap facility estimated to cost 3%-3.5% annually for three to five years. Madan Sabnavis, chief economist at Bank of Baroda, estimates the swap costs could reach ₹36,000 crore over the next three to five years. However, Emkay Global's analysis suggests the total cost could be as high as ₹1.2 trillion ($10.6 billion) over five years, with the two operations combined. The central bank will also have to absorb the extra rupees entering the banking system when lenders exchange their dollars with the central bank. However, IDFC First Bank's Gaura Sengupta estimates that on a net basis, per year cost could be as low as ₹10,000 crore, or even marginally positive for the RBI if the dollars are invested in 10-year US Treasuries yielding about 4.7%. For now, the RBI doesn't see the cost as a major concern because the final bill will depend partly on how the dollar proceeds are invested. Manoj Arora warned that if the rupee falls against the US dollar, the impact of these dollar-linked loans could eventually fall on the Indian economy, while NRIs benefit from the higher returns.
The RBI's special USD-INR forex swap facility for FCNR(B) deposits, Overseas Foreign Currency Borrowings (OFCB) and External Commercial Borrowings (ECBs) generated $136.38 billion in total inflows as on August 31, 2026. According to the RBI data, FCNR(B) deposits alone accounted for $127.23 billion, while OFCBs contributed $5.26 billion and ECBs amounted to $3.89 billion. The facility for ECBs and OFCBs will remain open until December 31, 2026, as hitherto, providing continued opportunities for foreign currency mobilisation.
