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Relevance: GS Paper III — Indian Economy, External Sector & the RBI Source: RBI & news reports, June 2026

1 · What happened

The Reserve Bank of India (RBI) has brought back a special swap scheme to attract more foreign money into the country. The same tool was last used during the currency trouble of 2013, about 13 years ago.

The scheme is built around FCNR(B) deposits — that is, Foreign Currency Non-Resident (Bank) deposits, which are fixed deposits that Indians living abroad keep in foreign currency (like US dollars).

The RBI acted because such deposits had almost dried up — inflows fell from $7.08 billion in FY25 to just $946 million in FY26. The goal now is to bring in more dollars and support the rupee.

2 · How the scheme works, step by step

The simple idea: banks want to attract dollars from Non-Resident Indians (NRIs), but doing so carries a risk. In this scheme, the RBI takes that risk on itself, so banks can offer better interest and pull in more dollars.
1
An NRI deposits dollars in a bank
An Indian living abroad puts US dollars in an Indian bank as a fixed deposit. The bank promises to return those same dollars, with interest, after 3 to 5 years.

2
The bank faces a risk
The bank changes those dollars into rupees to lend within India. But if the rupee becomes weaker later, it will need more rupees to buy the dollars back — a loss. Guarding against this loss is expensive, so the bank ends up offering NRIs only low interest.

3
The RBI steps in and takes the risk
Under the new scheme, the RBI itself bears the currency risk. It promises to take the dollars back from the bank later at the same fixed rate. So even if the rupee falls, the bank does not lose.

4
Banks can now offer higher interest
With the risk gone, banks can raise the interest rate on FCNR(B) deposits (to roughly 5.5% and above). Better rates make these deposits attractive, and dollars begin flowing in.

5
The rupee becomes stronger
More dollars in the country means a stronger, steadier rupee. This improves India’s Balance of Payments — the overall account of money coming in and going out of the country.

  • Why 2013 matters: In 2013, the rupee crashed when foreign investors suddenly pulled their money out of India (an event called the “taper tantrum”). The RBI used the same swap scheme then, brought in about $26 billion, and quickly steadied the rupee. So this tool has a proven record.
  • It is not free for the RBI: By taking on the risk, the RBI carries a real cost. But this is balanced by a big gain — a stronger rupee makes India’s imports cheaper and helps control price rise (inflation) caused by costly imports.
  • The important caution: This money is really a short-term loan in dollars that must be repaid in 3 to 5 years. It is a quick fix, not a permanent cure. India should use this calm period to depend less on imports (like oil and electronics) and to export more, so it does not face the same pressure again.

UPSC Value Box
FCNR(B) Deposit Foreign Currency Non-Resident (Bank) deposit — an NRI fixed deposit kept in foreign currency, so the depositor faces no rupee risk.
NRI Non-Resident Indian — an Indian citizen living abroad.
Swap scheme An arrangement where the bank gives dollars to the RBI for rupees now, and swaps them back later at the same fixed rate.
Currency (exchange-rate) risk The danger of loss if the rupee’s value falls against the dollar before the deposit is repaid.
Balance of Payments (BoP) A full record of all money flowing between India and the rest of the world. NRI bank deposits come under its Capital Account.
Taper Tantrum (2013) A panic when the US central bank signalled it would slow its money support, making investors pull money out of countries like India.
Scheme dates Deposits raised 8 June–30 Sept 2026; window open till 16 Oct 2026; one-year lock-in.
2013 result About $26 billion raised; helped restore confidence in the rupee.

MCQ Practice Question
Q. With reference to the RBI’s FCNR(B) swap scheme, consider the following statements:

  1. FCNR(B) deposits are held in foreign currency, so the NRI depositor does not bear the risk of a falling rupee.
  2. Under the present scheme, the individual bank continues to carry the full currency risk on these deposits.
  3. Inflows through FCNR(B) deposits are recorded under the Capital Account of India’s Balance of Payments.

Which of the statements given above is/are correct?
(a) 1 and 2 only    (b) 2 and 3 only    (c) 1 and 3 only    (d) 1, 2 and 3

Answer: (c) 1 and 3 only

  • Statement 1 — Correct: Because the deposit stays in foreign currency, the depositor is safe even if the rupee weakens.
  • Statement 2 — Incorrect (the trap): The whole purpose of the scheme is that the RBI, not the bank, takes on the currency risk. Saying the bank still carries it reverses the main idea.
  • Statement 3 — Correct: NRI bank deposits like FCNR(B) are part of the Capital Account of the Balance of Payments, not the current account.
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