RBI launches forex swap facility for PSU ECBs, bank foreign borrowings

The Reserve Bank of India (RBI) has unveiled a special foreign exchange swap facility for public sector undertaking (PSU) external commercial borrowings (ECBs) and banks raising overseas foreign currency funds, in a move aimed at attracting dollar inflows and easing pressure on the country's external account.

Under the scheme, eligible PSU ECBs with an average maturity of three years or more can access the facility for fresh drawdowns until December 31, 2026. Undrawn portions of existing ECBs will also qualify, although borrowings raised solely to refinance existing loans have been excluded.

The facility will also be available to banks raising fresh overseas foreign currency borrowings. Regardless of the currency in which funds are raised, the RBI's swap facility will be available only in US dollars, with the maximum tenor capped at five years. The central bank will offer the swap at a fixed rate of 1.5% per annum.

The mechanism allows banks to sell dollars to the RBI and buy them back at maturity, providing certainty over funding costs while helping channel foreign currency into the domestic financial system. The facility becomes operational from June 8 and will remain open for eligible inflows until December 31, 2026, while banks can avail the swap window until January 15, 2027.

The RBI's notification has also drawn attention in the FCNR(B) deposit market. Dealers said the circular suggests banks may be able to offer leverage to depositors investing in FCNR(B) deposits under the swap facility.

According to dealers, the amount of foreign currency that an FCNR(B) scheme ultimately attracts depends significantly on the availability of such leverage.

The RBI said FCNR(B) deposits mobilised during the swap facility period would continue to be governed by existing guidelines. However, it added that provisions under Paragraph 402 of the Reserve Bank of India (Commercial Banks – Credit Facilities) Directions, 2025 would not apply to such deposits.

Paragraph 402 relates to lending restrictions, which is not applicable here.

The move comes at a time when policymakers are seeking to strengthen foreign currency inflows amid rising crude oil prices, persistent geopolitical tensions in West Asia and volatility in global capital flows. A similar FCNR(B)-linked scheme launched during the 2013 taper tantrum helped attract nearly $26 billion in three months and played a key role in stabilising the rupee and rebuilding foreign exchange reserves.

Also Read: India's 2013 fix for a forex deficit may not work in 2026

While the global backdrop is markedly different today, the RBI's latest measures signal a renewed focus on bolstering external financing conditions and ensuring adequate foreign currency liquidity as uncertainty around oil prices and capital flows persists.