FCNR(B) deposits surge after RBI swap window; SBI, HSBC lead

RBI swap window spurs FCNR(B) inflows

Foreign Currency Non-Resident (Bank) deposits, or FCNR(B), have nearly doubled in recent weeks, driven by the Reserve Bank of India's (RBI) swap window. The facility, which allows banks to swap dollars for rupees at a fixed rate, has prompted a rush of mobilisation, with State Bank of India (SBI) and HSBC leading the charge.

Data compiled by Moneycontrol shows that the outstanding FCNR(B) deposits have surged from around $20 billion to nearly $38 billion since the window opened in late July. This marks one of the sharpest increases in such deposits in recent years, underscoring the appeal of the swap route for lenders looking to shore up their foreign currency resources.

Why banks are flocking to the swap window

The RBI's swap window, introduced to ease dollar liquidity concerns, allows banks to convert their FCNR(B) deposits into rupees at a pre-determined exchange rate. This effectively passes on the currency risk to the central bank, making the deposits an attractive funding source for lenders.

For banks, the math is simple: by offering slightly higher interest rates on FCNR(B) deposits and then swapping the proceeds, they can lock in a rupee cost that is often lower than other wholesale funding options. This has led to a flurry of marketing campaigns, with both public and private sector banks aggressively courting non-resident Indians (NRIs).

SBI and HSBC take the lead

SBI, the country's largest lender, has mobilised the most FCNR(B) deposits, leveraging its vast branch network and NRI customer base. HSBC, with its strong global franchise, has also emerged as a key player, particularly among high-net-worth individuals in the Gulf and North America.

According to banking sources, the two institutions together account for roughly a third of the total inflows seen so far. Other major lenders, including HDFC Bank and ICICI Bank, have also reported significant upticks, though their volumes remain smaller.

Implications for the rupee and liquidity

The surge in FCNR(B) deposits is a positive development for the rupee, as it brings in much-needed dollar inflows. This has helped stabilise the currency, which had come under pressure earlier in the year due to global headwinds and rising crude prices.

For the banking system, the swap window provides a cushion against potential liquidity tightness. By converting dollars into rupees, banks are adding to their domestic liquidity buffers, which could support credit growth in the coming months.

However, some analysts caution that the rush could create a maturity mismatch if banks do not manage their swap tenures carefully. The RBI has set a three-year swap facility, and banks are expected to match their deposit tenures accordingly.

What to watch next

The RBI's swap window is set to remain open until late September, and bankers expect the momentum to continue as long as the rate differential remains favourable. The central bank will likely monitor the inflows closely, with an eye on both currency stability and banking system resilience.

Market participants will also be watching whether the FCNR(B) surge translates into sustained dollar liquidity, or if it remains a short-term fix. For now, the trend is clear: banks are making the most of the window, and the numbers reflect it.