FCNR(B) deposits: RBI swap shields banks from currency risk on principal
An explainer on FCNR(B) deposits set out how currency risk is shared. The Reserve Bank of India’s swap facility shields banks from currency risk on the principal amount raised through such deposits. However, banks must manage the dollar interest payments themselves, which leaves some banks exposed if the rupee weakens and the cost of servicing those dollar payments rises.
Nabka Insight
How RBI swaps allocate currency risk on FCNR(B) deposits is a classic banking-awareness concept.
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- An RBI swap protects banks from currency risk on the principal of FCNR(B) deposits.
- Banks themselves bear the dollar interest payment obligations.
- A weaker rupee can leave banks exposed on those dollar interest payments.
Background
Relevant forBanking · SSC · State PSC · UPSC