Union Finance Minister Nirmala Sitharaman reviewed the progress of the RBI’s concessional swap facility for Foreign Currency Non-Resident [FCNR(B)] deposits and urged banks to increase outreach to Non-Resident Indians (NRIs) to mobilize more foreign currency deposits and strengthen India’s foreign exchange reserves.
Context
What is FCNR(B)?
Foreign Currency Non-Resident (Bank) [FCNR(B)] Account is a term deposit account that allows Non-Resident Indians (NRIs) to maintain deposits in designated foreign currencies with banks in India.
Regulated by
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- Reserve Bank of India (RBI)
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Eligible Account Holders
- Non-Resident Indians (NRIs)
- Persons of Indian Origin (PIOs)
Nature of Account
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- Fixed-term deposit
- Maintained in foreign currency
- Both principal and interest are fully repatriable.
Objectives
- Mobilize foreign currency deposits.
- Strengthen India’s foreign exchange (Forex) reserves.
- Reduce external sector vulnerabilities.
- Provide NRIs with a safe foreign currency investment option.
Key Features
Foreign Currency Deposits
Accounts can be maintained in major foreign currencies such as:
- US Dollar (USD)
- Pound Sterling (GBP)
- Euro (EUR)
- Japanese Yen (JPY)
- Australian Dollar (AUD)
- Canadian Dollar (CAD)
Tenure
- Minimum: 1 year
- Maximum: 5 years
Exchange Rate Protection
- Deposits remain in foreign currency.
- No exchange-rate risk for the depositor.
What is the RBI’s Concessional Swap Facility?
The RBI introduced a special foreign exchange swap window to encourage banks to attract FCNR(B) deposits and eligible overseas borrowings.
How it Works
- NRIs deposit foreign currency in Indian banks.
- Banks receive foreign currency.
- Banks swap the foreign currency with RBI.
- RBI provides rupees at a concessional swap cost.
- At maturity, the transaction is reversed.
This reduces the foreign exchange risk and funding cost for banks.
What is External Commercial Borrowing (ECB)?
External Commercial Borrowings are commercial loans raised by eligible Indian entities from foreign lenders.
Regulator
- Reserve Bank of India
Purpose
- Infrastructure financing
- Capital expenditure
- Business expansion
- Long-term investments
What is OFCB?
Overseas Foreign Currency Borrowings (OFCBs) are foreign currency borrowings undertaken by eligible Indian financial institutions from overseas markets.
