FCNR(B) FAQs: RBI Addresses Queries On Swap Facility, Permits Loans On Deposits

The Reserve Bank of India (RBI) has issued detailed clarifications on its recently announced swap facility for Foreign Currency Non-Resident (Bank) or FCNR(B) deposits, allowing banks to extend loans against such deposits while outlining the scope of its foreign exchange hedge support.

According to the FAQs released by the central bank, banks will be permitted to provide loans to non-resident Indians (NRIs) against their FCNR(B) deposits. However, lenders will be required to mark a lien on the underlying deposits to secure such loans.

The RBI also clarified that under the special swap facility, it will bear the hedging cost only on the principal amount of eligible FCNR(B) deposits and not on the interest component. The clarification is aimed at helping banks accurately price deposits mobilised under the scheme.

The FAQs also cover the special swap facility for FCNR(B) deposits, external commercial borrowings (ECBs) and overseas foreign currency borrowings (FCBs), providing operational guidance to participating banks.

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The clarifications follow RBI Governor Sanjay Malhotra's announcement on June 5, when the central bank unveiled a series of measures to attract foreign currency inflows and strengthen external sector liquidity.

As part of the package, the RBI said it would bear the full hedging cost on fresh FCNR(B) deposits with maturities of three to five years mobilised by banks until September 30, 2026.

To further encourage banks to raise overseas deposits, the RBI exempted fresh FCNR(B) and Non-Resident External (NRE) deposits from statutory reserve requirements, including the Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR). The move is expected to improve the economics of mobilising NRI deposits, enabling banks to offer more attractive interest rates.

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