RBI's special forex swap window draws $136.38 billion, led by FCNR(B) deposits
The RBI pulled in over $136 billion to steady the rupee. What happens when it has to give the dollars back?
Published 3 September 2026. Written by Pratidin from the reports linked at the end; every fact checked by a separate review before publishing. How we work
The Reserve Bank of India (RBI) said on 2 September 2026 that its special USD-INR forex swap facility had brought in $136.38 billion ($1,36,377 million) by 31 August 2026. Of this, $127.23 billion came through fresh Foreign Currency Non-Resident (Bank), or FCNR(B), deposits, $5.26 billion through overseas foreign currency borrowings (OFCBs) of banks and $3.89 billion through external commercial borrowings (ECBs). FCNR(B) deposits thus made up about 93% of the total. The RBI said the figures are provisional and subject to final reporting, accounting and reconciliation.
The facility opened on 8 June 2026, when the rupee was under pressure. Under it, a bank raises three- to five-year foreign currency deposits from non-resident Indians, sells the dollars to the RBI and receives rupees to lend at home; at maturity the trade is reversed. Because the RBI bears the cost of hedging the currency risk, banks can offer depositors more attractive rates. The FCNR(B) window was to run till the end of September, but it was closed on 31 August, a month early, after a strong response. The ECB and OFCB routes remain open till 31 December 2026.
India used the same tool in 2013, during the 'taper tantrum', when markets reacted to signals that the US Federal Reserve would slow its bond purchases. That window raised about $34 billion, of which about $26 billion came through FCNR(B) deposits, with the RBI offering a concessional swap rate of 3.5% a year. Those three-year deposits fell due in 2016. The 2026 window is about four times as large. The inflows add to reserves and support the rupee now, but the RBI has committed to sell the dollars back when the deposits mature, and commentators have flagged the risk of a 'redemption cliff' if large amounts fall due together.
Prelims facts
- The RBI's special USD-INR swap facility, opened on 8 June 2026, drew $136.38 billion by 31 August 2026 (provisional).
- FCNR(B) deposits brought $127.23 billion, overseas foreign currency borrowings of banks $5.26 billion and ECBs $3.89 billion.
- The FCNR(B) window closed on 31 August 2026, a month early; the ECB and OFCB windows stay open till 31 December 2026.
- In 2013, a similar window raised about $34 billion, about $26 billion of it via FCNR(B), at a concessional swap rate of 3.5% a year.
- In an FCNR(B) deposit, the account is held in foreign currency and the bank, not the depositor, bears the exchange-rate risk.
Quick recall
- How much did the RBI's special USD-INR swap facility draw by 31 August 2026?
- $136.38 billion ($1,36,377 million), provisional.
- Which route brought in the most money under the 2026 swap window?
- FCNR(B) deposits: $127.23 billion.
- When did the 2026 swap facility open?
- 8 June 2026.
- Till when do the ECB and OFCB windows stay open?
- 31 December 2026.
- Who bears the exchange-rate risk on an FCNR(B) deposit?
- The bank, since it must repay in the same foreign currency.
- What is the tenure range of FCNR(B) deposits?
- One to five years (the swap window accepted three- to five-year deposits).
- How much did the 2013 swap window raise, and at what concessional swap rate?
- About $34 billion (about $26 billion via FCNR(B)) at 3.5% a year.
- Name the four components of India's foreign exchange reserves.
- Foreign currency assets, gold, SDRs and the reserve tranche position in the IMF.
Prelims practice question
Consider the following statements about the Reserve Bank of India's special forex swap facility of 2026:
1. Banks sold dollars raised through FCNR(B) deposits to the RBI and received rupees.
2. The window for FCNR(B) deposits remains open till December 2026.
3. FCNR(B) deposits accounted for more than 90% of the inflows reported till 31 August 2026.
Which of the statements given above is/are correct?
- 1 only
- 2 only
- 1 and 3 only
- 1, 2 and 3
Show answer
Answer: (c) 1 and 3 only. Statement 1 describes the swap. Statement 2 is wrong: the FCNR(B) window closed on 31 August 2026; only the ECB and OFCB windows run till 31 December. Statement 3 is right: $127.23 billion of $136.38 billion is about 93%.
Use this in UPSC Mains: previous-year questions
Recurring theme: External sector management: rupee, forex reserves and capital inflows
- How to use this
Use the RBI swap window as an example of how external pressure on the rupee threatens stability, and of the policy tools and costs involved.
- The RBI's special USD-INR swap facility, opened on 8 June 2026 when the rupee was under pressure, drew $136.38 billion by 31 August, $127.23 billion through FCNR(B) deposits.
- In 2013, during the 'taper tantrum' over US Federal Reserve signals, a similar window raised about $34 billion at a concessional swap rate of 3.5% a year.
- Commentators flag a 'redemption cliff' when deposits mature; a swap buys time but does not correct a current account gap, so stable inflows through exports and FDI are needed.
When the rupee depreciates, the RBI can sell dollars; the swap window is the other side of that tool, pulling dollars in to build the reserves it sells from.
Rupee convertibility on the capital account shapes which foreign inflows, such as NRI deposits and ECBs, India can attract and on what terms.
Mains practice question
Explain how a central bank foreign exchange swap can support a weakening currency. Evaluate the benefits and risks of the Reserve Bank of India's special swap window of 2026. (150 words)
Model answer
In a foreign exchange swap, the RBI buys dollars now and agrees to sell them back later. Its 2026 window drew $136.38 billion by 31 August 2026.
How it supports the rupee
- Banks raised three- to five-year FCNR(B) deposits and swapped the dollars with the RBI, which bore the hedging cost.
- The dollars add at once to reserves, reassuring markets and giving the RBI room to curb volatility.
- Locked-in deposits are steadier than portfolio flows.
Benefits
- Scale: FCNR(B) deposits alone brought $127.23 billion.
- Banks get rupee funds to lend.
Risks
- Redemption cliff: the RBI must return the dollars when deposits mature.
- Cost: the RBI absorbs the hedging cost.
- Temporary fix: it does not correct a current account gap.
Way forward
Plan for maturities and deepen stable inflows through exports and FDI.
A swap buys time for the rupee; lasting stability needs stronger fundamentals.
The basics
Why this matters
When the rupee weakens, the Reserve Bank of India (RBI) can sell dollars from its reserves. But reserves are finite. A special swap window lets the RBI pull in fresh dollars from abroad instead. Understanding how it works covers Prelims basics (types of NRI deposits, reserves, swaps) and a Mains question on external-sector management.
How the swap works
A Foreign exchange swap is two trades agreed together: one today and the reverse one on a future date. Here, banks raised FCNR(B) deposits from non-resident Indians and swapped the dollars with the RBI.
- 1DepositA bank raises a three- to five-year foreign currency deposit from a non-resident Indian
- 2Swap inThe bank sells the dollars to the RBI and receives rupees to lend at home
- 3Reserves riseThe dollars add to India's foreign exchange reserves
- 4Swap outAt maturity the bank buys the dollars back from the RBI at agreed terms
- 5RepayThe bank repays the depositor in foreign currency
Because the RBI bears the hedging cost, the bank does not pay the market price of protecting itself against a falling rupee. It can therefore offer depositors better rates.
Where the money came from
Two kinds of NRI deposit
The choice of deposit decides who carries the currency risk.
- Held in rupees
- Depositor bears the exchange-rate risk
- Principal and interest repatriable
- Held in a foreign currency
- Bank bears the exchange-rate risk
- Term deposit of one to five years
Done once before
- 2013Window during the taper tantrum raises about $34 billion, about $26 billion of it via FCNR(B), at a concessional swap rate of 3.5% a year
- 2016The three-year 2013 deposits fall due
- 8 June 2026RBI opens the special USD-INR swap facility
- 31 August 2026FCNR(B) window closes, a month early
- 31 December 2026ECB and OFCB windows close
The takeaway
The swap brings dollars in today and adds to India's foreign exchange reserves, but the RBI has promised to hand them back when the deposits mature. It buys time for the rupee; it does not remove the need for steady inflows through exports, investment and External commercial borrowings.
Go deeper
In one line: The RBI's special USD-INR swap facility, opened on 8 June 2026 to attract dollars during rupee weakness, brought in $136.38 billion by 31 August 2026, over 93% of it through FCNR(B) deposits.
Why it matters for UPSC
It tests core external-sector ideas: NRI deposit types, how a central bank swap works, what counts in forex reserves and how India defends the rupee. It also has a precedent (2013) that examiners like to compare.
The core idea
Banks raised FCNR(B) deposits of three to five years and sold the dollars to the RBI under a Foreign exchange swap, getting rupees now and agreeing to reverse the trade at maturity. The RBI bore the hedging cost. The dollars add to India's foreign exchange reserves. Banks could also bring in money through their overseas borrowings and through External commercial borrowings.
Numbers and dates to remember
- 8 June 2026: facility opens.
- 31 August 2026: FCNR(B) window closes (a month early).
- $136.38 billion total: FCNR(B) $127.23 billion, OFCBs $5.26 billion, ECBs $3.89 billion.
- 31 December 2026: ECB and OFCB windows close.
- 2013: earlier window raised about $34 billion at a 3.5% concessional swap rate.
Where to go next
- FCNR(B) deposits: the NRI deposit that carried most of the inflow.
- Foreign exchange swap: why a swap is a loan of dollars, not a sale.
- India's foreign exchange reserves: what the inflows add to.
- External commercial borrowings: the corporate route kept open till December.
Go deeper: a strong shield, with a bill that falls due later
Why it worked. The RBI absorbed the hedging cost, so banks could pay depositors more on FCNR(B) deposits. The response was so strong that the FCNR(B) window, planned to run till the end of September, was closed on 31 August. At $136.38 billion, the haul is about four times the roughly $34 billion raised in 2013.
What it achieves. The dollars add to India's foreign exchange reserves immediately. Larger reserves reassure markets and give the RBI room to sell dollars if the rupee comes under pressure. Banks also get rupee funds to lend at home.
What it costs. A Foreign exchange swap is not a gift of dollars. The RBI has agreed to sell the dollars back at maturity, and it bears the cost of hedging. When a large share of three- to five-year deposits matures together, the RBI must supply those dollars; commentators call this a 'redemption cliff'. The 2013 deposits fell due in 2016, so the RBI has handled such a maturity before.
Comparison with other routes. Portfolio flows can leave quickly. Swap-backed deposits are locked for years, which makes them steadier in the short run. Corporate borrowing through External commercial borrowings adds foreign debt on company balance sheets rather than the RBI's.
The lesson. Swap windows are a tool for stress. Lasting rupee stability depends on exports, foreign direct investment and a manageable current account deficit.
FCNR(B) deposits
The NRI deposit that carried most of the inflow.
In one line: A Foreign Currency Non-Resident (Bank) deposit is a term deposit that a non-resident Indian keeps with an Indian bank in a foreign currency.
Key features
- Held in freely convertible foreign currencies such as the US dollar, pound, euro or yen.
- Term of one to five years.
- Principal and interest are repatriable.
- The bank, not the depositor, bears the exchange-rate risk, because it must repay in the same foreign currency.
Why banks need a swap
A bank that takes dollars but lends rupees at home faces a currency mismatch. Covering it in the market costs money. When the RBI takes on that cost through a swap, deposits become cheaper for banks to raise.
Why it is in the news
FCNR(B) deposits brought in $127.23 billion of the $136.38 billion under the 2026 swap window.
Where to go next
- Foreign exchange swap
- India's foreign exchange reserves
Foreign exchange swap
Why a swap is a loan of dollars, not a sale.
In one line: A foreign exchange swap is a pair of currency trades agreed together: an exchange now and the reverse exchange on a fixed future date.
How it works
In a buy/sell swap, the RBI buys dollars from a bank today and agrees to sell the same dollars back later at terms fixed today. For the life of the swap, the RBI holds the dollars and the bank holds rupees.
Why central banks use swaps
- To add to reserves quickly without permanent purchases.
- To inject or absorb rupee liquidity in the banking system.
- To share or absorb currency risk so that inflows become attractive.
The catch
The RBI has a commitment to deliver dollars in future. If many swaps mature at once, it must have those dollars ready.
Why it is in the news
The 2026 facility used swaps with banks that raised FCNR(B) deposits, overseas borrowings and ECBs.
Where to go next
- FCNR(B) deposits
- India's foreign exchange reserves
India's foreign exchange reserves
What the inflows add to.
In one line: Foreign exchange reserves are the external assets held by the RBI to pay for imports, service external debt and steady the rupee.
Components
- Foreign currency assets, the largest part.
- Gold.
- Special Drawing Rights (SDRs), the IMF's reserve asset.
- Reserve tranche position in the IMF.
How the RBI uses them
When the rupee falls sharply, the RBI can sell dollars from reserves to meet demand. When dollars flood in, it can buy them to prevent sharp appreciation. Its stated aim is to curb excessive volatility, not to defend a fixed rate.
Why it is in the news
The swap window adds dollars to reserves at once. Because the RBI must return them at maturity, analysts watch its forward commitments alongside the headline reserve figure.
Where to go next
External commercial borrowings
The corporate route kept open till December.
In one line: External commercial borrowings (ECBs) are commercial loans that eligible Indian entities raise from recognised non-resident lenders.
Rules
ECBs are governed by the Foreign Exchange Management Act, 1999 and the RBI's ECB framework, which sets eligible borrowers and lenders, end-uses and cost ceilings. Borrowing is possible through an automatic route or an approval route.
ECBs and the swap window
Under the 2026 facility, dollars raised through ECBs could also be swapped with the RBI. This route brought in $3.89 billion by 31 August 2026 and stays open till 31 December 2026, along with overseas foreign currency borrowings of banks, which brought in $5.26 billion.
Why ECBs carry risk
A company that borrows in dollars but earns in rupees faces higher repayments if the rupee falls, unless it hedges.
Where to go next
- India's foreign exchange reserves
- FCNR(B) deposits
Take the 3 September 2026 quiz: 18 Prelims-style questions with answers