💱 FCNR(B) Deposit Swap with RBI: 2025 FAQs for Treasury & Compliance Teams

🌍 Introduction: What Is the FCNR(B) Swap Facility?

To manage forex flows and support NRI deposits, the Reserve Bank of India (RBI) introduced a swap window for banks mobilizing Foreign Currency Non-Resident [FCNR(B)] deposits.

Under this facility:

• Banks mobilize fresh FCNR(B) deposits

• RBI enters into a buy/sell forex swap covering only the principal

• Aims to stabilize forex reserves and provide INR liquidity to banks
  

This 2025 FAQ blog simplifies key compliance, accounting, and treasury aspects of the FCNR(B) swap facility under FEMA and RBI directives.

A man tallying US dollar notes at a counter, illustrating the mobilization of Foreign Currency Non-Resident bank deposits.

🏦 Q1. What are the pre-conditions for FCNR(B) deposit eligibility for RBI swap?

• Must be fresh deposits mobilized on or after Sept 6, 2013

• Permitted currencies only

• Minimum maturity: 3 years

• Lock-in period: 1 year
  

💡 Other FCNR(B) deposits (non-compliant) won’t qualify for the RBI swap.

📋 Banks must maintain separate ledgers and audit trails for:

• Eligible FCNR(B) swap-linked deposits

• Non-swap FCNR(B) deposits
  

🔁 Q2. What is the nature of the swap offered by RBI?

A simple buy/sell forex swap:

• RBI buys the foreign currency (e.g., USD) when deposit is received

• RBI sells it back at maturity

• Only principal is covered (no interest component)
  

🔄 Q3. Can renewed deposits be treated as fresh deposits for swap?

✅ Yes, if:

• Renewed at maturity

• New tenure is ≥ 3 years

• One-year lock-in applies
  

💸 Q4. How is the 3.5% swap cost calculated?

• Compounded semi-annually

• Applied for the entire tenor

• Not a flat annual charge
  

📌 Effective cost accumulates over the swap’s life span (see illustration below).

🕒 Q5. When can banks approach RBI for swaps?

• After accumulating at least USD 1 million in eligible FCNR(B) deposits

• Banks are expected to conduct swaps with RBI once a week

• Coordinate with the Financial Markets Department of RBI
  

📅 Q6. How is the swap tenor determined?

• Matches the tenor of underlying deposits

• Must be ≥ 3 years

• Bank must specify exact tenor in number of days
  

📈 Q7. Is it mandatory to pass swap benefit to depositors?

❌ No. Banks may decide deposit interest rates within RBI’s ceiling limits.Refer: Circular DBOD.Dir.BC.38/13.03.00/2013-14 (Aug 14, 2013).

🚫 Q8. What if the deposit is withdrawn prematurely?

• The bank must cancel the swap with RBI

• Cancellation can be batched after reaching a threshold (as defined by RBI)
  

🔄 Q9. How is the swap re-priced after premature withdrawal?

• Swap cost is re-computed based on remaining tenor

• Revised swap is entered with RBI

• Follows transparent cost-adjustment methodology (see Illustration below)
  

❌ Q10. Can a swap be canceled even if deposit isn’t withdrawn?

❌ No. Only deposits withdrawn before maturity trigger swap cancellation.

💱 Q11. How are non-USD FCNR(B) deposits treated?

• Convert to USD equivalent at prevailing market rate

• Maintain consistent conversion policy

• Document and audit all conversions
  

💵 Q12. Can banks use other forex sources during withdrawal?

✅ Temporarily, yes. While swap cancellation is in progress, banks may:

• Arrange USD from other permitted sources

• Must still unwind the swap with RBI for the withdrawn deposit
  

🤝 Q13. Is ISDA agreement with RBI required?

❌ No ISDA agreement is required for RBI swaps.

🕒 Q14. What if residual deposit tenor is <3 years due to late swap?

✅ Allowed if:

• Original deposit met 3-year requirement

• Delay occurred while accumulating minimum USD 1 million
  

RBI allows swaps for residual maturity, even if slightly <3 years.

🧮 Q15. Are RBI swaps exempt from capital norms?

✅ Yes. Though swaps are “in-the-money” and off-market:

• Exposure to RBI is exempt from capital adequacy norms
  

🌐 Q16. Can banks provide loans abroad using FCNR(B) deposits?

✅ Yes. Banks may:

• Provide loans abroad to FCNR(B) account holders

• Place lien on FCNR(B) deposits as collateral
  

Refer to RBI’s NRI Deposit Scheme FAQs.

📊 Illustration: Swap Cost & Repricing Example

Initial Swap Deal (USD 1 million)

Leg	Date	USD-INR Rate
Buy (near)	23 Sep 2013	62.6390
Sell (far)	09 Feb 2017	70.4419*

🔢 Rate compounded at 3.5% semi-annually for 1235 days

Premature Withdrawal after 756 Days

• Remaining tenor: 479 days

• Revised swap cost: 14.9%(3.5% + 4.0% + 7.4%)
  

New Swap Deal

Leg	Date	USD-INR Rate
Sell (near)	19 Oct 2015	84.3561
Buy (far)	09 Feb 2017	70.4419

This adjusts for the terminated swap and ensures consistent cost treatment.

📌 Conclusion: FCNR(B) Swaps Are Strategic — But Complex

The RBI FCNR(B) swap facility is a tactical tool for forex management and liquidity optimization. Treasury and compliance teams must maintain:

• Accurate eligibility classification

• Consistent swap tenor reporting

• Timely swap initiation and cancellation

• Full audit trails and pricing disclosures
  

📩 Need help navigating RBI swap windows, audit prep, or NRI deposit compliance? Partner with GIFT CFO — India’s go-to advisory for treasury support, RBI filings, and FEMA compliance.