FCNR-B Announced, But Clarity on Leverage Key to Large-scale Inflows

Research evidence excerpt

FCNR-B Announced, But Clarity on Leverage Key to Large-scale Inflows

India | Financials EquityJuneResearch7, 2026

FCNR-B Announced, But Clarity on Leverage

Key to Large-scale Inflows

RBI opened the doors to FCNR-B deposits and ECB raisings by offering

to bear the cost of hedging. This is similar to the 2013 scheme when the

banking sector mobilized $34bn in total funds, ie, 12% of forex reserves &

3% of deposits. Clarity on leverage for depositors will be key to returns that

entice larger inflows, esp as yield gap between India & US yields is lesser

this time. HDFCB & ICICI were among the largest mobilisers of funds.

RBI reinvigorates FCNR-B deposits to entice longer-term forex inflows. In order to strengthen

foreign reserves & liquidity with longer-term inflows, RBI has reinvigorated the FCNR-B deposit

scheme that targets deposits from non-resident Indians for 3-5 years. The key risks for such

deposits have been the depreciation of INR for depositors and hedging costs for banks. RBI

may bear the entire cost of hedging (clarity awaited) and to exempt these deposits from SLR

and CRR. This would be more liberal than in 2013 when RBI capped the hedging cost for banks

at 3.5%. Besides the FCNR-B deposit scheme, RBI has also allowed PSUs to raise ECB funds

for which RBI can bear the cost of hedging. The hedging window is open til 30-Sep-26.

The 2013 scheme was a blockbuster. In 2013, the RBI announced the FCNR-B and ECB

scheme (Swap Window to attract FNR-B Dollar Funds and Concessional Swaps for Fresh

Overseas Borrowings). Through these two schemes, banks mobilized US$34bn - with $26bn

going towards FCNR-B and $8bn towards ECB. This was equivalent to 12% of forex reserves

in Aug-13, ie, before announcement of FCNR-B / ECB scheme. Majority of funds came with a