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Swap Window for attracting FCNR (B) Dollar funds

Disclaimer : In case of any inconsistency(ies) between FAQ and FEMA notification(s)/Master Directions(s)/AP DIR Circular(s) latter shall prevail.

1. What are the pre-conditions for the FCNR (B) deposits mobilised by a bank for being eligible to be swapped with RBI under the swap window ? +

Only fresh FCNR (B) deposits mobilized in any of the permitted currencies after September 6, 2013 with a minimum three years maturity and having a lock in period of one year are permissible deposits under the swap window.

Banks are free to mobilise other types of permitted FCNR (B) deposits as specified in the RBI Master Circular on Interest Rates on FCNR (B) Deposits dated July 1, 2013 read with Circular DBOD.Dir.BC. 38/13.03.00/2013-14 dated August 14, 2013. However, such deposits will not qualify as eligible deposit for the purpose of swap with RBI. Banks are advised to maintain separate ledgers for FCNR (B) deposits mobilised under both the schemes along with proper audit trail of transactions.

2. What is the nature of swap offered by RBI ? +

The swap is in the nature of a simple buy/sell foreign exchange swap from the RBI side covering just the principal portion of the deposits and not the interest component.

3. Can the maturing FCNR (B) deposits be renewed and construed as fresh deposits for the purpose of swap ? +

Yes. However, only such deposits which are renewed on maturity for a minimum tenor of three years and having a lock in period of one year would qualify as eligible deposits for undertaking swap with RBI.

4. How will the swap cost of 3.5 per cent be computed ? +

The swap cost of 3.5 per cent will be compounded semi-annually for the tenor of the swap.

5. When can a bank approach RBI for the swap ? +

As and when the bank mobilizes USD one million or more of FCNR (B) deposits, it may approach RBI. Normally, banks may enter into swap transactions with RBI once in a week in consultation with the Financial Markets Department of RBI.

6. How will the tenor of the swap be arrived at ? +

The tenor of the swap will be for three years or more in line with the tenor of the underlying FCNR (B) deposits. Bank desirous of availing the swap window may approach RBI for the swap, indicating the tenor in number of days.

7. Is it necessary to pass on the benefit arising out of the swap to the depositor ? +

Banks would be free to price the deposit within the overall ceiling as per the extant guidelines issued by RBI (c.f. RBI Circular DBOD.Dir.BC. 38/13.03.00/2013-14 dated August 14, 2013).

8. In case of premature withdrawal of deposit, is it necessary for the bank to approach RBI for cancellation of the swap ? +

Yes, banks have to necessarily approach RBI for cancellation of the swap if the underlying FCNR (B) deposit has been prematurely withdrawn. For the sake of operational and mutual convenience of both RBI and the bank, the cancellation of the swap may be undertaken once a threshold amount of deposits have been prematurely withdrawn. The threshold amount will be decided by RBI and conveyed to the bank at the time of bank approaching the RBI for cancellation of swap.

9. How would the swap be re-priced once a bank approaches RBI for cancellation of the swap subsequent to premature withdrawal of the underlying FCNR (B) deposits ? +

The re-pricing of the swap would be done as given in the illustration at the end of the FAQ.

10. Can a bank approach RBI for termination of the swap even if the underlying FCNR (B) deposit(s) has not been prematurely withdrawn ? +

No.