The Reserve Bank of India (RBI) has introduced a special US dollar-Indian rupee swap facility for new Foreign Currency Non-Resident (Bank) deposits, making it more attractive for NRI investors. The new scheme, similar to the one introduced in 2013, will be available for deposits mobilised till September 30, 2026.
Authorised dealer banks can mobilise fresh FCNR(B) deposits for three to five years and swap the underlying foreign currency with the RBI. Banks can decide the deposit rates.
Analysts said banks may need to raise the rates by at least 100 basis points to encourage NRIs from the Gulf, the US, UK and other countries to invest their funds.
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India’s central bank is keen to attract foreign currencies, especially in view of the sharp decline in foreign exchange reserves. For the week ending May 22, 2026, the reserves declined by $7.51 billion to $681.38 billion.
Decling value of Indian rupee
Foreign investors have been pulling out from the Indian stock markets, adding to the woes of its reserves. Almost $30 billion worth of shares have been dumped by them in 2026. The Indian rupee has also plunged by about 5 per cent since the Gulf war began in late February.
The new FCNR(B) deposits scheme could attract over $50 billion if banks offer higher rates to the investors. But current interests are relatively low, ranging between 3.0 per cent and 3.5 per cent, as against 6.0 per cent to 6.5 per cent for domestic deposits.
Consequently, NRI deposits into India through FCNR(B), Non-Resident External (NRE) rupee deposits and Non-Resident (Ordinary) accounts have fallen to $14.41 billion in FY 2026, as against $16.16 billion in FY 2025.
But banks could attract FCNR(B) deposits if they are able to hike the interest rates to 5.5 per cent or higher. Madhavi Arora, chief economist at Emkay Global Financial Services, told the media that with the RBI bearing the full hedging costs, banks would be able to offer 6.0 per cent to 6.5 per cent on FCNR(B) deposits.
The RBI has also relaxed rules relating to investments in Indian stocks by NRIs, Overseas Citizens of India (OCIs) and all individual Persons Resident Outside India (PROIs) by raising the investment limits.
In its 2026 budget, the Indian government raised the investment limits for these investors from 5 per cent to 10 per cent. The combined ceiling for all such investors was also raised from 10 per cent to 24 per cent.
Total NRI deposits were up at $165.65 billion at the end of FY 2026, almost a billion dollars more than in the previous fiscal. NRIs also prefer the rupee-denominated NRE accounts, where deposits rose by $7.94 billion in FY 2026 to $98.56 billion.
Impact on NRIs from the Gulf
Rayad Kamal Ayub, managing director of UAE-based Rayad Group which provides advisory services to family offices, told Khaleej Times: “The reintroduction of the swap window is, in substance, a sovereign subsidy on currency risk, and NRIs should read it as exactly that. When the RBI absorbs the full hedging cost, the structural drag that has kept FCNR(B) yields pinned at 3.0 to 3.5 per cent disappears, and banks gain the headroom to price deposits at 6.0 per cent or better in fully repatriable dollar terms.
For a Gulf-based investor, this means a dollar-denominated, principal-protected instrument paying near rupee-deposit yields with zero currency exposure, no Indian tax incidence on interest, and a three to five year tenor that locks in the spread before global rates normalise.
Ayub explained: “Layered against the enhanced equity headroom, with individual limits doubled to 10 per cent and the aggregate ceiling raised to 24 per cent, the NRI now has a genuinely two-tiered allocation path into India: a risk-free dollar carry at the base and meaningfully widened equity participation above it.”
“Windows of this kind are episodic by design; the 2013 facility drew $34 billion in roughly two months precisely because sophisticated money recognised the asymmetry early,” he added.
Bolstering confidence in India
For India, the arithmetic is equally compelling. With reserves at $681 billion and falling, portfolio outflows approaching $30 billion this year, and the rupee down by about 5 per cent since February, the central bank needs durable, non-flighty dollar liabilities rather than hot money, and three to five year FCNR(B) deposits are precisely that.
Ayub believes “a mobilisation of $50 billion would not merely replenish reserves; it would compress forward premiums, ease imported inflation through a firmer rupee, and lower the sovereign’s external financing anxiety at a moment of geopolitical stress, all without drawing on fiscal resources.”
The deeper signal, Ayub underscored, is one of confidence. “India is choosing to fund its external account through its own diaspora at market terms rather than through concessional or multilateral channels.
That is the mark of an economy negotiating turbulence from a position of institutional strength, and the diaspora that responds early will, as in 2013, be the constituency that captures the best pricing.”
