FCNR(B) Deposits Under RBI Swap Facility: Why NRIs Have Until August 31 to Lock In Elevated Rates
The Reserve Bank of India confirmed on August 14, 2026 that its USD-INR Forex Swap Facility will close its FCNR(B) channel for new deposits on August 31, 2026. NRIs with idle foreign currency must act before this date to lock in elevated rates — supported by RBI's swap hedge — for up to 5 years. Interest on FCNR(B) deposits is exempt from Indian income tax under Section 10(4)(ii) of the Income-tax Act, 2025 for NRI and RNOR account holders.
CA Harun Raaj
Chartered Accountant · Harun Raaj & Associates
Source: RBI Press Release, August 14, 2026 (prid=63378) | CONTENT EXPIRES: August 31, 2026
The Reserve Bank of India confirmed on August 14, 2026 that its USD-INR Forex Swap Facility — launched June 8, 2026 — will close its FCNR(B) channel for new deposits on August 31, 2026. This has a direct, time-sensitive implication for Non-Resident Indians with idle foreign currency: the rate environment that has made FCNR(B) deposits unusually attractive over the past two months is about to change.
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What Is the RBI Forex Swap Facility?
On June 8, 2026, the RBI introduced a USD-INR Forex Swap Facility to attract foreign currency inflows and bolster India's foreign exchange reserves. Under the scheme, authorised dealer (AD) banks could mobilise foreign currency from three sources:
- FCNR(B) deposits from NRIs and Persons of Indian Origin
- Overseas Foreign Currency Borrowings (OFCBs) from foreign lenders
- External Commercial Borrowings (ECBs)
Banks participating could then enter into USD-INR swap agreements with the RBI, converting foreign currency receipts into rupees at a predetermined rate and eliminating their currency risk. This made it economically viable to offer elevated FCNR(B) interest rates to attract NRI depositors. By August 13, 2026, the scheme had attracted USD 56,846 million in total inflows — FCNR(B) alone accounted for USD 52,300 million.
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What Changed on August 14, 2026
The RBI called the response "encouraging" and announced:
The FCNR(B) channel — the largest contributor at USD 52.3 billion — is being wound down while ECB and OFCB channels continue.
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Why This Matters for NRI Depositors
Banks offered 6–8%+ per annum on FCNR(B) because the RBI swap offset their hedging cost. Once the window closes on August 31, the economic rationale for elevated rates disappears. Rates are expected to normalise.
NRI clients who open FCNR(B) deposits before August 31 and lock in current rates will continue to receive those rates for their full tenure (1 to 5 years), regardless of what happens to rates after the window closes.
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FEMA Compliance: What NRIs Need to Know
FCNR(B) deposits are governed by the Foreign Exchange Management (Deposit) Directions, 2016 under Section 10(4) and Section 11(2) of the Foreign Exchange Management Act, 1999.
Key features:
- Who can open: NRIs and Persons of Indian Origin
- Currencies: USD, GBP, EUR, JPY, CAD, AUD (bank-specific — confirm with your AD bank)
- Tenure: Minimum 1 year, maximum 5 years
- Repatriability: Principal and interest are fully repatriable — no FEMA restrictions
- No PIS account required: Unlike equity investments, FCNR(B) does not require a Portfolio Investment Scheme account
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Indian Tax Treatment
Interest on FCNR(B) deposits is exempt from Indian income tax under Section 10(4)(ii) of the Income-tax Act, 2025 [equivalent to Section 10(4)(ii) ITA 1961] for individuals maintaining NRI or RNOR (Resident but Not Ordinarily Resident) status. No TDS is deducted. The exemption ceases when you become a full resident.
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Your Home-Country Tax Treatment (Critical — Do Not Skip)
India's exemption does not extend to your country of tax residence:
US-resident NRIs: FCNR(B) interest is taxable in the United States despite India's exemption. The India-US DTAA (Article 11 — Interest) applies; India may withhold at 10% on gross, which you claim as a foreign tax credit in your US return. Consult a US CPA before investing.
Gulf NRIs (UAE, Qatar, Kuwait, Bahrain, Oman, Saudi Arabia): Generally zero home-country tax on interest income. Combined with India's Section 10(4)(ii) exemption, this produces a fully non-taxed yield — the strongest client fit for this opportunity.
UK-resident NRIs: Remittance basis and domicile considerations apply; FCNR(B) interest is foreign-source income.
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See Also
Frequently Asked Questions
Can I open FCNR(B) after August 31?+
Yes. FCNR(B) is a permanent product under the FEM (Deposit) Directions 2016. What closes is the specific RBI Forex Swap Facility. After August 31, banks will offer FCNR(B) at independently determined rates, which are expected to be lower than swap-supported rates.
My existing FCNR(B) deposit — is it affected?+
No. Existing deposits continue at contracted rates for their full tenure. The August 31 2026 deadline applies only to new deposits entering the RBI Forex Swap Facility.
Does the LRS USD 250,000 limit apply to FCNR(B) deposits?+
No. FCNR(B) involves an inward remittance by the NRI to India. The LRS limit applies to residents sending money outward from India. NRI inward remittances are not subject to LRS.
How do I confirm my NRI or RNOR status for the Section 10(4)(ii) exemption?+
Residential status for income tax is determined under Section 6 of the Income-tax Act, 2025, based on days spent in India during the financial year and preceding years. A Chartered Accountant can confirm your status from your travel records for FY 2025-26.
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