What changed
RBI introduced a dedicated swap window for scheduled commercial banks (excluding RRBs) to swap fresh FCNR(B) deposits of minimum 3-year tenor into rupees. The swap is at a fixed rate of 3.5% per annum, with banks selling USD to RBI and agreeing to buy back at maturity. The window operates daily (except Saturdays/holidays) and closes on November 30, 2013.
What it means for you
This gives banks a cheap, assured hedge to attract long-term FCNR(B) deposits, reducing their forex risk and boosting dollar inflows. Banks can now offer competitive rates on 3-year+ FCNR(B) deposits, knowing the swap cost is fixed. The one-year lock-in and weekly swap limit ensure orderly use, but premature termination carries a steep penalty.
What you must do
- Mobilize fresh FCNR(B) deposits with minimum 3-year tenor and document them weekly for swap eligibility.
- Submit a signed declaration to RBI confirming the deposits are fresh and meet tenor requirements before each swap.
- Ensure deposits have a one-year lock-in; do not cancel swaps before one year without RBI approval.
- Monitor the swap window daily and plan weekly submissions, as each bank can swap only once per week.
- Prepare for potential early termination by understanding the re-pricing formula (400 bps above 3.5% plus market swap rate).
Who it affects
Scheduled commercial banks (excluding RRBs), Treasury and forex desks of banks, Deposit mobilization teams handling FCNR(B) products
Can we swap FCNR(B) deposits in currencies other than USD?
Yes, deposits can be in any permitted currency, but the swap with RBI is only in US Dollars. You must convert other currencies to USD for the swap.
What happens if a depositor prematurely withdraws after one year?
You can approach RBI to terminate the swap, but the cost will be recalculated at 400 bps above the original 3.5% rate plus the prevailing market swap rate for the residual tenor. RBI's decision is final.
Is there a limit on how much we can swap each week?
Yes, the maximum swap amount in a week equals the fresh 3-year+ FCNR(B) deposits mobilized in equivalent USD during the preceding week(s). Each bank can swap only once per week.