Discuss the role of RBI's concessional swap facilities in managing India's Balance of Payments. How does the 2026 scheme compare with the 2013 FCNR(B) swap window?

Q. Discuss the role of RBI's concessional swap facilities in managing India's Balance of Payments. How does the 2026 scheme compare with the 2013 FCNR(B) swap window? (15 marks, 250-350 words)

A concessional swap facility allows banks to convert foreign currency raised abroad into rupees with the RBI at a below-market rate, cutting their hedging cost and making overseas funds cheaper to mobilise. Operationalised on June 8, 2026 for FCNR(B) deposits, External Commercial Borrowings (ECBs) and Overseas Foreign Currency Borrowings (OFCBs) [1], it is the RBI's principal capital-account tool for shoring up the Balance of Payments (BoP).

Role in managing the Balance of Payments - Strengthens the capital account: channels NRI savings and corporate foreign borrowing into onshore dollar supply, helping finance the current account deficit. - Rebuilds forex reserves quickly: the 2026 window mobilised USD 40.8 billion by July 31, 2026 — USD 36.7 bn via FCNR(B), USD 2.6 bn via OFCBs, USD 1.5 bn via ECBs [2]. - Stabilises the rupee: fresh inflows ease depreciation pressure without depleting reserves through spot dollar sales. - Lengthens liability maturity: only FCNR(B) deposits of three years and above and ECBs of comparable maturity qualify, with swap tenor capped at five years [1] — reducing rollover risk. - Non-fiscal, bank-led delivery: executed through Authorised Dealer banks, so no budgetary outgo is involved.

2026 scheme compared with the 2013 window - Continuity: both subsidise the forward premium on fresh FCNR(B) deposits of minimum three-year maturity routed through banks [1][3]. - Intent: 2013 was defensive firefighting after the Taper Tantrum, at a fixed concessional rate of 3.5 per cent [3]; 2026 is pre-emptive, framed as strengthening the BoP and incentivising inflows. - Scope: 2013 covered FCNR(B) and banks' own overseas borrowing; 2026 widens eligibility to corporate ECBs and OFCBs [1]. - Design: 2026 uses staggered, time-bound windows — FCNR(B) till September 30, 2026 and ECB/OFCB till December 31, 2026 [1].

Swap windows are thus a swift, market-based bridge that buys macroeconomic breathing space. Being debt-creating and time-bound, they must be paired with export competitiveness, deeper FDI flows and prudent reserve management so that external resilience rests on structural strength rather than episodic inflows.

(~330 words)

Sources: 1. Swap Facility for FCNR(B) deposits, External Commercial Borrowings and Overseas Foreign Currency Borrowings — RBI FAQs (June 2026) — eligibility, three-year minimum tenor, five-year swap cap, June 8 2026 operationalisation, window validity dates 2. RBI Press Release, August 1, 2026 — Forex inflows mobilised under the swap facility — USD 40.8 billion total and FCNR(B)/OFCB/ECB break-up as on July 31, 2026 3. Swap Window for attracting FCNR(B) Dollar funds — RBI FAQs (2013) — 3.5 per cent concessional rate, fresh deposits after September 6, 2013, three-year minimum maturity