India Banks Can Lend Against Fcnrb Deposits Says Rbi

The Reserve Bank of India (RBI) on Tuesday said Indian banks, including their overseas branches, are permitted to extend loans to non-resident account holders or even issue Standby Letters of Credit (SBLC) in favour of overseas lenders against FCNR(B) deposits mobilised under the new swap facility.

The regulator has said that this permission is in addition to existing provisions that already allow banks to extend secured or unsecured credit and issue guarantees under normal banking norms.

The RBI, in its clarification issued as frequently asked questions (FAQ), said banks are permitted to extend loans to the FCNR (B) account holders and mark lien on such deposits. Lien is a legal claim or right over someone else’s property until a debt or obligation is paid.

On June 5, the RBI announced the special dispensation that allows banks to mobilise fresh three- to five-year FCNR(B) deposits until September 2026. It also permitted them to swap these deposits with the RBI at a concessional rate, effectively covering the entire hedging cost.

By absorbing the hedging burden, the RBI has made FCNR(B) deposits a more attractive source of overseas funding for lenders. Experts believe the steps announced may attract an additional $50 billion in foreign capital into Indian markets as banks have offered higher interest rates after considering the hedging sops.

The RBI 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 bank 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,” it said.

Interest rates on deposits, including where differential rates of interest are offered, will be subject to compliance with paragraph 32(2) of the Reserve Bank (Commercial Banks – Interest Rate on Deposits) Directions, 2025.

Banks will continue to offer regular FCNR (B) deposits, without availing swap facility, for customer deposits with a tenor of 3 years and above up to 5 years, without the requirement of a minimum lock-in period of one year. However, records shall be maintained separately, it said.

ECBs can be raised for any period, as permitted in terms of Foreign Exchange Management (Borrowing and Lending) (First Amendment) Regulations, 2026. However, the ECBs of average maturity of three years and above are eligible for this facility. Further, the tenor of the swap will be co-terminus with the repayment schedule or maturity of the ECB, subject to a maximum period of five years, the central bank said.