The Reserve Bank of India's decision to reopen a special FCNR(B) swap window has triggered a fresh round of competition among banks, with several lenders raising interest rates on dollar deposits for non-resident Indians (NRIs). AU Small Finance Bank has emerged as the most aggressive player, offering as much as 7.1% on select USD deposits.

The move follows the RBI's announcement on June 8 that banks can mobilise fresh Foreign Currency Non-Resident (Bank), or FCNR(B), deposits and swap the proceeds with the central bank. The facility will be available for deposits mobilised until September 30, 2026, while banks can access the swap window until October 16.

The mechanism, last used during the 2013 rupee crisis, is aimed at attracting foreign currency inflows and supporting India's external position amid elevated oil prices and a weak rupee.

What are FCNR(B) deposits and how does the RBI swap window work?

Foreign Currency Non-Resident (Bank), or FCNR(B), deposits are fixed deposits that allow Non-Resident Indians (NRIs) to keep their savings in foreign currencies while earning interest. Since both the principal and interest are maintained in the same currency, depositors are protected from exchange rate fluctuations.

Under the Reserve Bank of India's latest framework, eligible FCNR(B) deposits must have maturities ranging from three to five years. These deposits will carry a mandatory lock-in period of one year, after which banks may permit premature withdrawals according to their internal policies. However, the RBI has clarified that once a swap transaction is executed, it cannot be reversed.

The swap mechanism allows banks to sell US dollars to the RBI and simultaneously agree to buy back the same amount at the end of the swap period. Both legs of the transaction are settled at the FBIL reference rate, making it a par swap. The operations will be managed by the RBI's Financial Markets Operations Department in Mumbai.

RBI absorbs hedge costs

The key attraction of the scheme is that the RBI will absorb the currency hedging costs associated with FCNR(B) deposits. Since those costs have historically limited the rates banks could offer, analysts expect the move to make foreign currency deposits more attractive for both lenders and NRIs.

Experts said the arrangement improves the economics of FCNR(B) deposits by reducing hedging uncertainty and enabling banks to price deposits more competitively.

AU SFB leads with 7.1%

Following the reopening of the swap window, banks have begun raising FCNR(B) deposit rates to attract overseas funds. Punjab National Bank now offers up to 6.10% on five-year FCNR deposits, while AU Small Finance Bank has increased its peak USD FCNR(B) rate to 7.10% from 5.15%, effective June 10, 2026.

The lender increased its USD FCNR(B) rate from 5.15% to 7.10% for deposits with maturities between three and four years. It is also offering 7% on four- and five-year deposits.

HDFC Bank and Central Bank of India are both offering 6.00% on USD FCNR(B) deposits with maturities ranging from three to five years. Punjab National Bank offers a peak rate of 4.99% for deposits with tenures of one year to less than two years, while ICICI Bank provides 4.50% for deposits ranging from 12 months to less than 24 months.

State Bank of India (SBI) is offering 4.40% on USD FCNR(B) deposits with maturities of one year to less than two years. These rates reflect banks' efforts to attract foreign currency inflows following the Reserve Bank of India's latest FCNR(B) swap window initiative.

Central Bank of India has matched that level, providing 6% on three- to five-year USD deposits.

Could inflows exceed 2013 levels?

A similar FCNR(B) swap facility introduced by the RBI in 2013 helped banks mobilise nearly $34 billion, strengthening India's foreign exchange reserves and stabilising the rupee.

However, the interest-rate environment has changed considerably since then. US Treasury yields are currently around 4.5%, reducing the advantage Indian banks enjoyed more than a decade ago.

Economists remain optimistic that the RBI's latest FCNR(B) swap window could attract substantial foreign currency inflows, with estimates ranging between $40 billion and $60 billion by September 2026. The scheme is also expected to enable banks to offer significantly higher returns on FCNR deposits, intensifying competition for NRI funds, with some lenders already offering rates above 7%.

Published on: Jun 11, 2026 6:20 AM IST