What changed
RBI has launched a new swap facility for FCNR(B) deposits, allowing banks to swap fresh deposits of 3-5 year tenor into USD at the FBIL Reference Rate. The swap is at par and non-cancellable, with a one-year lock-in on deposits. Banks can avail the facility once a week, with the swap tenor matching the deposit tenor.
What it means for you
This facility provides banks a cost-effective way to hedge FCNR(B) deposit liabilities, reducing forex risk. It encourages longer-term FCNR(B) inflows, boosting foreign currency liquidity. Banks must ensure proper documentation and audit trails, and cannot cancel swaps, locking in the exchange rate for the deposit tenor.
What you must do
- Mobilize fresh FCNR(B) deposits of 3-5 year tenor and maintain separate records for those covered under this scheme.
- Submit swap requests to RBI's Financial Markets Operations Department via email, with a declaration of compliance.
- Ensure consistent conversion policy for non-USD deposits to USD equivalent at prevailing market rates.
- Adhere to the one-year lock-in period; premature withdrawal allowed only after one year as per internal policy.
- Avail swap only once per week, with the eligible amount based on deposits mobilized in preceding weeks not yet swapped.
Who it affects
All Authorised Dealer Category-I Banks, Banks mobilizing FCNR(B) deposits, Treasury and forex operations teams, Compliance and audit departments
Can we cancel the swap with RBI if the deposit is prematurely withdrawn?
No, swaps undertaken with RBI cannot be cancelled, even if the underlying deposit is withdrawn prematurely after the one-year lock-in.
What is the maximum tenor for deposits under this facility?
Deposits must have a minimum tenor of three years and a maximum tenor of five years. The swap tenor aligns with the deposit tenor.
How often can a bank avail this swap facility?
A bank can avail the swap facility only once in a week, with the eligible amount based on deposits mobilized in preceding weeks not yet swapped.