FCNR (B) swap facility covers only principal, excludes interest: RBI

PTI New Delhi

The Reserve Bank of India (RBI) on Tuesday said the Foreign Currency Non-resident (Bank) [FCNR (B)] swap facility is a simple foreign exchange swap that only covers the original principal amount and excludes the interest component.  

The central bank clarified this position in its frequently asked questions (FAQs) on the swap facility for FCNR (B) deposits, external commercial borrowings, and overseas foreign currency borrowing. According to the RBI, the facility acts as a plain buy-sell foreign exchange swap from its side, covering only the principal amount of the deposits and not the interest component.

The RBI also said banks are permitted to extend loans to the FCNR (B) account holders and mark a lien on such deposits. On June 8, the central bank introduced this special US dollar-rupee forex swap scheme to enable banks to mobilise fresh FCNR (B) deposits without hedging risk, a move aimed at attracting foreign capital. Under the scheme, banks have been permitted to offer higher returns on dollar deposits in an FCNR (B) account with a tenure of three to five years.  

FCNR (B) deposits help non-resident Indians (NRIs) earn in foreign currency while protecting savings from rupee depreciation risk.