FCNR(B) deposits: Who bears the currency risk? | Explained

The RBI has a system in place for FCNR(B) deposits, where banks take in foreign currency deposits, but the Reserve Bank shields them from currency risk on the principal amount. This means banks are protected if the value of the rupee falls, but they still have to manage the interest payments in dollars, which can leave them exposed if the rupee weakens. This setup can create uncertainty for banks and may impact their ability to manage their foreign currency liabilities.

Why it matters

The RBI swap helps shield banks from currency risk on the principal. However, banks still have to manage dollar interest payments themselves, which could leave some exposed if the rupee fluctuates.

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