The Reserve Bank of India (RBI) introduced a special USD-INR forex swap facility to encourage banks to bring more foreign currency into India. The facility received a much stronger response than expected. By 31 August 2026, banks had provisionally mobilised $136.377 billion through the facility. The RBI had initially expected around $70–80 billion. The actual amount was therefore much higher than expected. The facility was introduced during a period of global uncertainty. Trade tensions, geopolitical conflicts and changes in global financial conditions were creating pressure on financial markets. The RBI introduced the facility to:-

  • Encourage fresh foreign-currency inflows.
  • Improve liquidity in the domestic banking system.
  • Strengthen India’s foreign-exchange position.
  • Provide stability during global uncertainty.
  • Reduce excessive pressure on the rupee.

What is the RBI Forex Swap Facility?

A forex swap is an arrangement in which two parties exchange currencies for a certain period and agree to reverse the transaction later. Under the RBI’s facility, banks provide foreign currency to the RBI. In return, the RBI provides rupees to the banks. The transaction is temporary. At the end of the agreed period, the bank returns the rupees and receives the foreign currency back.

In simple words: Foreign currency enters banks then Banks swap it with RBI after that RBI gives rupees to banks then the swap is reversed later. This arrangement gives banks additional rupee liquidity. It also supports India’s foreign-exchange position.

How Does the FCNR(B) Forex Swap Work?

The facility was closely linked with foreign-currency resources raised by banks, especially through FCNR(B) deposits. The process works in the following way. First, banks mobilise foreign-currency deposits from NRIs and other eligible depositors through FCNR(B) accounts. The bank receives foreign currency through these deposits. This gives banks another source of funds apart from domestic deposits.

The bank then provides this foreign currency to the RBI under the swap facility. In return, the RBI provides the equivalent amount in rupees. The bank gets additional rupee liquidity and can use it to meet its funding needs. The swap is for a fixed period. At maturity, the bank returns the rupees to the RBI according to the agreed terms. The RBI then returns the foreign currency to the bank. Therefore, the foreign currency is not permanently transferred to the RBI.

What Are FCNR(B) Deposits?

FCNR(B) stands for Foreign Currency Non-Resident (Bank) Accounts. These are fixed-term foreign-currency deposits available to eligible NRIs, OCIs and PIOs. The deposits are kept in foreign currencies instead of Indian rupees. FCNR(B) deposits can be maintained in:-

  • US Dollar
  • Pound Sterling
  • Euro
  • Japanese Yen
  • Australian Dollar
  • Canadian Dollar

These accounts allow eligible non-residents to keep their savings in foreign currency. Interest earned on these deposits is tax-exempt in India when the depositor qualifies as a non-resident under the applicable rules. These deposits also provide Indian banks with foreign-currency funds.

Where Did the $136.377 Billion Foreign-Currency Inflows Come From?

By 31 August 2026, banks had provisionally mobilised a total of $136.377 billion through the facility. Most of the amount came from FCNR(B) deposits. The source-wise details are:-

  • FCNR(B) deposits: $127.226 billion, around 93%
  • OFCBs: $5.260 billion, around 4%
  • ECBs: $3.891 billion, around 3%
  • Total: $136.377 billion, 100%

FCNR(B) deposits were the largest source. They contributed $127.226 billion, or around 93% of the total. OFCBs contributed $5.260 billion, or around 4%. ECBs contributed $3.891 billion, or around 3%.

The total from all three sources was $136.377 billion.

What Happened to India’s Forex Reserves?

India’s foreign-exchange reserves reached $729.33 billion on 21 August 2026. This was a new record. The previous record was $728.49 billion, recorded on 27 February 2026. The strong mobilisation of foreign currency helped strengthen India’s external liquidity position. However, a forex swap and forex reserves are not exactly the same thing. A swap is a temporary exchange arrangement. Forex reserves are the official foreign assets held by the RBI.The forex swap facility can support India’s foreign-exchange position and provide additional support during periods of global uncertainty.

Why Are Forex Reserves Important for India?

Forex reserves are foreign assets held by the country’s central bank. They are important because India needs foreign currency to make payments to other countries. Forex reserves help India meet external payment obligations. Forex reserves of India provide a buffer against global financial shocks and help maintain confidence in the domestic currency. They also provide import cover. This means India can use its foreign-currency resources to pay for imports during periods of external stress. In simple words, forex reserves act as a financial safety cushion for the country.

Did the Forex Swap Strengthen the Rupee?

The forex swap did not lead to a significant strengthening of the rupee. Even after strong foreign-currency mobilisation and high forex reserves, the rupee remained weak. It was around ₹94.97 per US dollar during the period. This shows that higher forex reserves do not automatically make the rupee stronger.

The value of the rupee is affected by several factors, such as:

  • Capital flows into and out of India.
  • Global economic uncertainty.
  • Geopolitical risks.
  • Demand for the US dollar.
  • Strength of the US dollar in global markets.

Therefore, the forex swap can help reduce excessive volatility and provide support to the financial system. But it cannot decide the value of the rupee on its own.

Why Did the RBI Introduce the Forex Swap Facility?

The RBI introduced the facility mainly because of global and domestic financial concerns. Global uncertainty was high because of trade tensions and geopolitical conflicts. Such conditions can affect currencies, capital flows and financial markets. The RBI also wanted banks to bring more foreign currency into India. FCNR(B) deposits provided an important source of these foreign-currency funds. Another reason was to improve domestic liquidity. When banks swap foreign currency with the RBI, they receive rupees. This gives them additional funds for their banking activities.

The facility can also help reduce excessive pressure on the rupee. However, the facility cannot completely control the exchange rate because the rupee is affected by many domestic and global factors.

How Does the Forex Swap Facility Help Banks?

The forex swap facility can help banks mainly by giving them more liquidity and another source of funding. It is especially useful when banks need more funds for their regular operations.

Stable Funding

Foreign currency deposits can provide banks with medium-term funding. This gives banks another source of funds apart from regular domestic deposits.

More Rupee Liquidity

When banks swap foreign currency with the RBI, they receive rupees.This increases the amount of rupee liquidity available to banks and helps them meet their funding needs.

Lower Funding Pressure

Banks can face pressure when their lending grows faster than their deposits. The forex swap provides another source of funds. This can reduce some funding pressure, especially when the credit-deposit ratio is high.

Funding Cost

Banks may benefit from relatively attractive foreign-currency funding conditions. This can help banks manage their overall funding costs.

What Are the Key Concerns With the Forex Swap Facility?

The facility has several benefits, but it also has some concerns.

Rupee Remains Under Pressure

The rupee remained weak despite strong foreign-currency mobilisation and high forex reserves. It was around ₹94.97 per US dollar. This shows that the forex swap cannot solve all the problems related to the rupee.

It Can Be Costly for the RBI

The forex swap arrangement can impose a substantial cost on the RBI. Therefore, while the facility provides support to banks, it also creates a cost for the central bank.

Limited Structural Impact

FCNR(B) deposits are estimated to represent only around 3% of total bank deposits. This means that even though the response to the facility was very large, FCNR(B) deposits still form a relatively small part of the total deposit base of Indian banks.Therefore, the facility may not bring a major long-term change to the overall funding structure of banks.

Temporary Nature

A forex swap provides support for a particular period. It can improve liquidity and provide foreign-currency support, but it does not remove the deeper reasons behind pressure on the rupee.Global uncertainty, capital flows, geopolitical risks and the strength of the US dollar can continue to affect the rupee.

What Is the Overall Impact of the Forex Swap Facility?

The RBI’s USD-INR forex swap facility received a much stronger response than expected.By 31 August 2026, banks had provisionally mobilised $136.377 billion, while the RBI had initially expected only $70–80 billion. Around 93% of the total came from FCNR(B) deposits, which contributed $127.226 billion. India’s forex reserves also reached a record $729.33 billion on 21 August 2026. This was higher than the previous record of $728.49 billion recorded on 27 February 2026.

The facility helped banks get rupee liquidity and supported India’s foreign-exchange position. However, the rupee remained weak at around ₹94.97 per US dollar. The main point is that strong forex reserves and foreign-currency inflows can support the economy, but they cannot alone make the rupee stronger. The rupee is also affected by global conditions, capital flows, geopolitical risks and the strength of the US dollar.