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

The Reserve Bank of India (RBI) on Tuesday said the swap facility for foreign currency non-resident deposits (FCNR) is a simple foreign exchange swap, but only covers the original principal amount, not the interest.

The RBI also said banks are permitted to extend loans to the FCNR (B) account holders and mark a lien on such deposits, the central bank said in FAQs on Swap Facility for FCNR (B) deposits, External Commercial Borrowings and Overseas Foreign Currency Borrowing.

On June 8, the RBI introduced a 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. Banks have been permitted to offer higher returns on dollar deposits in an FCNR(B) Account with a tenure of three to five years.

 

Foreign Currency Non-Resident (Bank) deposits help NRIs earn in foreign currency while protecting savings from rupee depreciation risk.

"Reserve Bank of India will be providing a Forex Swap for the deposit received. The facility is a plain buy/sell foreign exchange swap from the RBI side covering only the principal amount of the deposits and not the interest component," the central bank said.

Further, banks will be allowed to undertake swaps for tenors of less than three years provided they have mobilised fresh eligible FCNR (B) deposits for minimum original tenor of three years as per the scheme.

According to the FAQs, banks can offer differential rate of interest.

The RBI has also introduced a US Dollar-Rupee Forex Swap Facility for external commercial borrowings (ECBs) of average maturity of three years and above by public sector undertakings (PSUs).

The tenor of the swap will be co-terminus with the repayment schedule / maturity of the ECB, subject to maximum period of five years, the FAQs said.

The swap facility has also been introduced for Overseas Foreign Currency Borrowings (OFCBs) raised by Authorised Dealer Category I banks for a minimum maturity of 3 years.