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Informist, Friday, Sept. 4, 2026

 

By Kabir Sharma

 

MUMBAI – Nearly 60% of the foreign currency non-resident (banks) deposits mobilised under the Reserve Bank of India's special swap scheme are concentrated in the five-year maturity bucket, according to data compiled by Informist. This will potentially spread out future dollar outflows when the deposits mature, but the longer tenor also leaves the central bank exposed to the risk of higher depreciation of the rupee over the life of the swaps.

 

Data compiled from 23 banks across sectors show that 60% of the FCNR(B) deposits are in the five-year bucket while around 40% are in the three-year bucket. The RBI Wednesday released the total FCNR(B) data, which showed banks mobilised $127.23 billion through the scheme. Applying the 60:40 split, approximately $76.3 billion will mature in five years and $50.9 billion will mature in three years.

 

Among the different types of banks, the eight public-sector banks Informist has data for have garnered the maximum five-year deposits. On an average, 71.7% of the FCNR(B) deposits raised by these state-owned banks are in the five-year bucket and only 28.3% are in the three-year bucket. This suggests that a larger proportion of the deposits mobilised by public-sector lenders will remain locked in longer, ensuring that these deposits are available for a longer period.

 

The six private-sector banks for which Informist has data have a more even distribution of maturity for the deposits, although the five-year bucket remains the larger one. The data show 56.9% of FCNR(B) deposits at private-sector banks are in the five-year category and 42.5% are in the three-year bucket.

 

The four foreign banks Informist has data for have collected 65% of FCNR(B) deposits in the five-year category and only 35% in the three-year bucket. Like public-sector banks, foreign banks mobilised more deposits in longer tenures and this will help to defer the repayments beyond the three-year point.

 

The five small finance banks Informist has data for have the shortest maturity profile among banks. About 55% of their FCNR(B) deposits are in the three-year bucket and 45% in the five-year bucket.

 

The maturity profile is significant because the longer the tenor of FCNR(B) deposits, the longer the currency exposure of the RBI's swap arrangements. Banks are also hedging the interest exposure on these deposits in the forward market, as the RBI will only cover the currency risk on the principal. However, market activity does not yet suggest aggressive hedging at levels that would indicate a large-scale rush to lock in the full longer-term exposure, according to a treasury official.

 

Under the scheme, the central bank's swap window transfers the hedging cost from banks to the RBI. This has helped to make these FCNR(B) deposits more attractive for banks.

 

The rupee has depreciated by roughly 14% over the past three years and around 29% over five years. In comparison, the current forward curve points to a considerably slower pace of depreciation over the next three to five years, with current forward pricing implying a cumulative depreciation of roughly 6% over three years and about 13% over five years. The forward premium of around INR 5.6 per dollar on the three-year contract and INR 11.9 on the five-year contract broadly translates into an annualised depreciation of around 2-2.5% a year, substantially below the rupee's historical pace of depreciation. This is perhaps the reason banks are not yet aggressively hedging their interest exposures on these deposits.

 

The RBI has effectively taken on the currency-hedging cost associated with the special FCNR(B) deposit swap programme. At an average 3% annual hedging cost, the central bank's estimated cumulative cost would be about $16 billion over the life of these deposits, assuming the 60:40 maturity split and that the 3% cost remains unchanged. This is consistent with the methodology used by SBI Research, which estimated that a $70 billion FCNR(B) corpus at a 3% annual hedging cost would result in a $2.1-billion annual notional cost and $10.5 billion over five years.  End

 

US$1 = INR 94.48

IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT

 

Edited by Rajeev Pai

 

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