RBI may have found a way to bring $50 billion into India
In today’s Finshots, we tell you how the RBI’s special swap facility for banks works, and why it could attract foreign capital into India.
But here’s a quick sidenote before we begin. We’re hiring a Content Writer at Ditto Insurance to create high-quality, search-first content that genuinely helps people make better decisions. If you care about strong research, sharp insights, and clear writing, this could be the role for you. Find more details here or share it with someone who’d be a great fit.
Now onto today’s story.
The Story
Last week, the RBI released two notifications. One said, “It has been decided to introduce a US Dollar-Rupee Forex Swap Facility for fresh FCNR (B) deposits, mobilised for a minimum tenor of three years and maximum tenor of five years.” The other announced, “It has been decided to introduce a US Dollar-Rupee Forex Swap Facility for External Commercial Borrowings (ECBs) of average maturity of three years and above…”
And believe it or not, these two dry-sounding notifications could end up attracting nearly $50 billion in foreign capital into India.
Now, we know what you’re thinking. Apart from the phrase “US Dollar-Rupee Forex Swap Facility” showing up in both statements, everything else sounds painfully technical.
So before we get to the $50 billion bit, let’s first break down what the RBI is actually talking about.
Let's imagine you’re an Indian living in the US with $50,000 sitting in a savings account earning about 4–5% a year. Then an Indian bank calls and says, "Hey, deposit those dollars with us for three years. We’ll pay you around 7% annually in dollars. And when the deposit matures, you’ll get your dollars back in full, regardless of how the rupee behaves. No currency risk whatsoever."
That’s essentially what the RBI has made possible with these notifications.
The reason is simple. The rupee has been steadily weakening against the dollar as dollars have been flowing out of India for a while.
For one, foreign institutional investors (FIIs) have sold roughly $45 billion worth of Indian assets since 2024. Then, in 2025, foreign portfolio investors (FPIs) recorded net stock sales of $18.9 billion. That’s by far the biggest annual outflow since 1992. And in just the first four months of 2026, FPIs have already sold over $20 billion, surpassing all of 2025. At the same time, NRI dollar deposits in Indian banks, technically called FCNR(B) deposits, have also fallen sharply.
When that happens, dollars start flowing out of India and the supply of dollars available in the domestic market shrinks. Naturally, dollars become scarcer. And that means it takes more rupees to buy a single dollar.
Which tells you one thing. India badly needs dollars to stabilise the rupee.
And for that, the RBI needed a plan, the centrepiece of which are these two special US Dollar-Rupee Forex Swap facilities — one for FCNR(B) deposits and another for External Commercial Borrowings (ECBs).
Basically, when banks receive money in dollars either as deposits from NRIs or through overseas borrowings called ECBs, they can’t immediately put those dollars to work. Because to lend money in India, banks need rupees.
That’s where these swap facilities come in. Banks hand over their dollars to the RBI and get rupees in return. Say the RBI swaps dollars at today’s exchange rate of ₹95 per dollar. Three or five years later, when the arrangement ends, the RBI gives banks back their dollars at the same exchange rate, even if the rupee has weakened to say ₹100 per dollar by then.
Normally, banks pay roughly 3.5% a year for this kind of protection. That cost is called hedging cost or basically insurance against the rupee weakening.
But this time, the RBI is sweetening the deal by removing the currency risk.
For fresh FCNR(B) deposits mobilised until September, banks pay zero hedging cost. And for dollars coming via ECBs, the RBI is offering swaps at a flat 1.5% per year until January 2027, which is still roughly half of the usual market rate.
There’s another incentive too. Usually, banks must park a chunk of deposits with the RBI as reserves through something called CRR (Cash Reserve Ratio) and SLR (Statutory Liquidity Ratio) requirements. That means not every ₹100 collected can actually be lent out.
But FCNR(B) deposits brought in during this special window are exempt from these rules. And that’s actually a big deal.
To give you a better understanding of this, let’s imagine a bank raises ₹100 and lends at 10%.
With a regular deposit, maybe ₹20 gets locked away under CRR and SLR, leaving only ₹80 to lend. Assuming a 7% deposit rate (on ₹100), the bank pays ₹7 in interest but earns only ₹8 (10% on ₹80) from lending. That’s a profit or spread of just ₹1.
Now compare that with an FCNR(B) deposit under this scheme. The bank can lend the full ₹100, earn ₹10, pay ₹7 in interest, and pocket a ₹3 spread, all while paying zero hedging cost.
Multiply that across millions of dollars, and banks suddenly have room to offer NRIs higher interest rates too.
But here’s the thing. Will NRIs actually move their money from a foreign bank to an Indian bank just for an extra 2% in interest?
Probably not, right?
But what if we told you that some NRIs could potentially multiply their returns several times over using something called a letter of credit (LOC)?
Sounds complicated, but it’s actually pretty simple.
Let’s go back to our earlier ₹100 FCNR(B) deposit example. Normally, the NRI earns 7% interest, or ₹7.
But now, imagine the NRI asks the Indian bank for an LOC against this deposit. Think of it as a guarantee given by the Indian bank promising that if a loan taken elsewhere isn’t repaid, it can be recovered from the NRI’s deposit.
So using this LOC, the NRI can approach a foreign bank, say, a US bank, and borrow money at a lower interest rate of around 4.5%. Let’s assume they borrow an amount equivalent to ₹400 and bring that money back into India as another FCNR(B) deposit. Suddenly, instead of ₹100, the NRI now has ₹500 parked in India. At 7% interest, that earns ₹35 a year (we’re simplifying things here by assuming a one-year period and ignoring the actual three-year minimum tenure).
And when the foreign loan matures, the US bank gets back ₹418 or the original ₹400 plus ₹18 in interest, backed by the LOC.
That still leaves the NRI with ₹117. Remove the original ₹100, and the effective gain is ₹17, instead of the original ₹7.
That’s more than double the return. Now, scale this across billions of dollars, and some analysts estimate NRIs could effectively earn 15–26% returns.
Which is exactly why the RBI expects $40–50 billion in inflows this year, meaningful enough to boost India’s roughly $680 billion forex reserves.
And before you think this is some grand experiment, that’s not the case. India has tried something very similar before.
Back in 2013, when the rupee crashed nearly 30% against the dollar during the infamous “taper tantrum” — a global panic sparked by signals that the US Federal Reserve would slow its bond buying program, the then RBI Governor Raghuram Rajan rolled out a nearly identical scheme.
That swap window charged banks a concessional 3.5% hedging cost (not zero like today). But even then, it managed to pull in $27 billion in FCNR deposits and around $34 billion in total inflows.
The end result was that India’s forex reserves rose by $12 billion, the rupee appreciated 3.4% within a year, and reserves kept climbing for the next three years, adding another $68 billion.
That’s why the 2013 move is still seen as one of India’s most successful currency stabilisation measures. And in some ways, the 2026 version is even more attractive, thanks to lower hedging costs.
But there’s a catch. The global environment today is far less friendly as you know. US Treasury yields are hovering around 4.5%, which means the gap between what an NRI earns in the US versus India is much smaller than in 2013, when US rates were close to 1%. Still, a 7% dollar return from an Indian bank could seem tempting.
Of course, none of this comes without trade-offs.
You have to remember that the RBI is effectively taking currency risk onto its own books, which essentially means that if the rupee weakens sharply over the next few years, the central bank absorbs the hit.
There’s another problem too. Some NRIs may simply close existing FCNR(B) deposits early and reopen fresh ones to earn better rates, meaning some of the “new” inflows may just be recycled money. In fact, a story by The Hindu Business Line suggests that nearly 30% of existing FCNR(B) deposits could be prematurely closed and rolled over into fresh deposits to take advantage of the sweeter terms.
So yeah, with so much at stake, whether this move actually brings in the projected billions and helps stabilise the rupee is something only time will tell.
Until then…
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