FCNR (B): The Rupee's Shock Absorber in Difficult Times

This time also was not different. The RBI's strategy of utilising Foreign Currency Non-Resident (Bank) Deposit scheme again proved how the instrument will be utilised when the rupee is facing tough times.

After launching the scheme, in the midst of the external sector turmoil caused by the Iran war in mid-2026, the Rupee remained stable at around Rs 96 per dollar. It actually helped the local currency not to plunge into the three-figure mark in quick time.

The FCNR (B) scheme allows NRIs to place fixed term deposits in foreign currencies while remaining safe from forex rate fluctuations.

On June 8, the RBI introduced a special dollar-rupee swap facility covering fresh FCNR (B) deposits with maturities extending up to five years.

The scheme allows NRIs to start fixed deposits in Indian banks in permitted foreign currencies. From the angle of the NRI, since the account withdrawal is in the form of the deposited foreign currency, there will not be any loss even if the rupee undergoes depreciation. This is because the deposit is denominated in foreign currencies, so if an NRI deposits $100, he will get back $100 at the time of withdrawal, regardless of rupee movements.

This time, under the scheme, the RBI also allowed concessions to banks including exemptions from CRR and SLR requirements and priority sector lending norms.

In the previous episodes of rupee depreciation also, the RBI used FCNR (B) to facilitate foreign currency inflows.

In 2013, when the US Fed announced sudden interest rate changes, quick FPI exit caused severe depreciation of the rupee. When the RBI deployed FCNR (B) concessions, the rupee appreciated by nearly 12%.

Substantial capital inflows were also followed; thereby strengthening the utility of the scheme as a saviour during tough times.

This time, the currency remained stable for a considerable time at Rs 95 to 96 range when the scheme was in full operation.

Still, an appreciation trend has not occurred because of the strong depreciation pressure caused by adverse external sector scenarios.

For banks also, the scheme allowed funds at a relatively lower cost of around 6% on an average. The scheme has helped the country to save the currency by withstanding the strong depreciation episode.

Trade deficits, software export declines and stagnation of remittances ??? all negative elements were in operation during this time and the scheme helped to tide over the crisis.

At the same time, the risk with the scheme is that the funds obtained should be serviced back with time. This will have repayment obligation for banks and a reverse trend on the exchange rate later. In conclusion, the scheme continues to prove the last resort to save the currency from steep depreciation pressures.