Indian banks can extend loans to the FCNR (B) account holders and mark lien on such deposits

The observations come in the central bank’s frequently asked questions (FAQs) on swap facility for FCNR (B)/ foreign currency non-resident (bank) deposits, external commercial borrowings and overseas foreign currency borrowings

Indian banks, including their overseas branches, can extend loans to non-residents, or issue a stand-by letter of credit (SBLC) in favour of overseas lenders against FCNR(B) deposits, mobilised under the RBI’s latest measures to attract foreign capital, according to the RBI.

The aforementioned observations come in the central bank’s frequently asked questions (FAQs) on swap facility for FCNR (B)/ foreign currency non-resident (bank) deposits, external commercial borrowings and overseas foreign currency borrowings. The FAQs come in the wake of the RBI receiving a flurry of questions from banks regarding mobilisation of FNCR (B) deposits.

Further, Indian banks can extend loans to the FCNR (B) account holders and mark lien on such deposits. This particular clarification addresses the anxiety of bankers at large banks, whether they can provide leverage to their FCNR (B) account holders.

Referring to the RBI allowing Indian banks to extend loans to the FCNR (B) account holders and mark lien on such deposits, a top official with a private sector bank said: “Banks regularly make an interpretation. Basis the call so made, customer offerings are made. This being a special situation, I am sure that there is tacit acknowledgement at the RBI as well. I would not be surprised if more banks decide to follow the precedence [leverage]. While the RBI has not called it out in plain speak, there is permission to lend for FCNR mobilised.”

forex swap

The RBI said it will be providing a forex swap for the deposit received. It emphasised that the facility is a plain buy/sell foreign exchange swap from the RBI side, covering only the principal amount of the deposits and not the interest component.

The central bank said a bank will be allowed to undertake swaps for tenors of less than three years, provided they have mobilised fresh eligible FCNR (B) deposits for a minimum original tenor of three years as per the scheme.

Banks may offer differential rate of interest on deposits. The Commercial Banks – Interest Rate on Deposits Directions, 2025, stipulates that interest rates on term deposits under the FCNR (B) Scheme shall vary only on account of one or more of the following factors — (i) tenor of deposits and (ii) size of deposits.

The RBI said a bank may continue to offer regular FCNR (B) deposits, without availing swap facility, for customer deposits with a tenor of three years and above up to five years, without the requirement of a minimum lock-in period of one year. However, records shall be maintained separately.

In a bid to attract foreign capital, the RBI announced a host of measures on June 5, including provision of a facility to bear the full hedging cost to banks for raising fresh 3- 5-year FCNR (B) deposits till September 30, 2026.

The RBI is also providing a facility of concessional forex swap till September 30 to incentivise ECBs by PSUs. To a question on “whether the borrower is allowed to raise ECB for tenor more than five years, the central bank said ECBs can be raised for any period, as permitted in terms of Foreign Exchange Management (Borrowing and Lending) (First Amendment) Regulations, 2026.

However, only ECBs of average maturity of three years and above are eligible for the facility of concessional forex swap.

Published on June 23, 2026