RBI Dollar-Rupee Forex Swap Scheme: A Golden Opportunity or Hidden Risk for ECB Borrowers

RBI Introduces Dollar-Rupee Forex Swap Scheme to Support Foreign Borrowings

With the twin objectives of arresting the devaluation of the rupee and augmenting the inflow of foreign exchange into the country, the Reserve Bank of India announced a significant scheme on 8 June 2026 — the Dollar-Rupee Forex Swap Facility — which represents an important policy development in India’s foreign-currency debt market. The scheme has been designed specifically for entities that raise External Commercial Borrowings (ECBs) and Overseas Foreign Currency Borrowings (OFCBs). Although the facility is extended to such institutions, its benefit ultimately accrues to their customers; accordingly, enterprises would do well to regard this scheme as an opportunity to access credit at a lower cost.

Why Foreign Currency Borrowings Create Currency Risk for Indian Companies

The practice of Indian industry raising external commercial borrowings abroad at low interest rates is one of long standing. Because interest rates in the United States or Europe are lower than those in India, foreign borrowing appears inexpensive. Such borrowing, however, carries a substantial risk — the risk of loss arising from rupee depreciation on account of movements in the exchange rate (currency risk). By way of illustration, suppose a company raised a loan of USD 100 million at a time when the dollar stood at ₹85. If, at the time of repayment, the dollar has risen to ₹92, the company must bear an additional depreciation burden running into crores of rupees, over and above interest, solely on account of the change in the exchange rate. It is for this reason that public-sector undertakings and banks are obliged to hedge their exposure.

RBI Dollar Swap Scheme Seeks to Reduce Foreign Currency Hedging Costs

It is precisely as a remedy for this problem that the Reserve Bank introduced its Dollar Swap Scheme in June 2026. The question, however, is whether this scheme is indeed the “golden opportunity” it appears to be, or whether it carries conditions that are not readily apparent. That question merits careful consideration.

What Exactly Is the RBI Dollar Swap Scheme?

The package announced by the Reserve Bank following the 61st meeting of its Monetary Policy Committee comprises two principal swap facilities — one for external commercial borrowings and overseas foreign currency borrowings, and the other for FCNR(B) deposits.

What Is a Foreign Exchange Swap?

Ordinarily, upon raising a loan in foreign currency, companies or banks “hedge” through banks in order to guard against the loss occasioned by rupee depreciation. This hedging entails a considerable annual cost, which frequently ranges between 2% and 4%. Now that the Reserve Bank is itself making a swap facility available at a fixed rate, this cost is set to be reduced substantially. The Reserve Bank has fixed the swap cost for this facility at 1.5% per annum, which is below the prevailing market rate. Consequently, the overall cost of foreign borrowing will be reduced significantly. The facility, however, will be available for a period of five years.

Should Foreign Currency Borrowing Be Short-Term or Long-Term?

This is the most important question of all. Where an enterprise has the capacity to repay the loan within two to three years and its foreign-currency earnings are assured, short-term borrowing may well be appropriate. For industries involving infrastructure, energy, manufacturing or large capital projects, however, long-term borrowing proves the safer course, for the following reasons:

• Interest rates can be fixed for the long term;
• Currency risk can be contained at a fixed cost;
• There is no sudden strain on cash flow; and
• The project is afforded a sufficient period in which to generate income.

That said, where borrowing is undertaken for a term exceeding five years, the question of hedging may arise afresh after five years. It is therefore essential to align the tenure of the loan appropriately with the cash flow of the project.

Who Is Eligible for the RBI Dollar Swap Facility?

1. Public-sector undertakings owned by the Central or a State Government that raise external commercial borrowings having a minimum average maturity of three years or more; and
2. Authorised Dealer Category-I banks that raise overseas foreign currency borrowings having a minimum maturity of three years.

What Is the Last Date to Avail the Swap Facility?

The facility will remain open until 15 January 2027 in respect of eligible borrowings raised up to 31 December 2026.

What Is the Tenor and Currency of the RBI Swap?

Notwithstanding that the underlying loan may have been raised in any foreign currency, the swap transaction with the Reserve Bank will be conducted only in United States dollars. The maximum tenor of the swap is limited to five years and must be consistent with the repayment schedule of the loan.

Why Is the RBI Dollar Swap Scheme a Golden Opportunity?

1. RBI Scheme Can Deliver Substantial Savings in Hedging Costs

Prior to the announcement of this scheme, the forward premium prevailing in the market — that is, the cost incurred in fixing the exchange rate when repaying a foreign-currency loan in rupees at a future date — was of the order of 3.5% to 5% per annum. The Reserve Bank, by contrast, has made this swap available at a rate of merely 1.5% per annum (with half-yearly compounding). Hedging is thus rendered possible at nearly half the market cost — a difference capable of yielding savings of crores of rupees on a large loan amount.

2. No ISDA Agreement Required for RBI Swap

Derivative transactions ordinarily require an International Swaps and Derivatives Association (ISDA) agreement, which is both time-consuming and cumbersome. Under this scheme, banks are not required to enter into any such agreement with the Reserve Bank, with the result that the process becomes more expeditious and streamlined.

3. RBI Swap Facility Also Covers Existing Borrowings

The facility applies not merely to new borrowings but also to the undrawn portion of existing external commercial borrowings, thereby broadening its scope.

4. RBI Swap Scheme Strengthens Foreign Exchange Reserves

According to data up to 31 July 2026, these swap schemes taken together (FCNR(B), banks’ overseas borrowings and external commercial borrowings) have generated an inflow of approximately USD 40.816 billion. This makes it clear that the market has responded favourably to the scheme. Of the amount mobilised, as much as 90% — that is, USD 36.725 billion — is attributable to FCNR(B) deposits, while overseas foreign currency borrowings (OFCBs) account for USD 2.575 billion and external commercial borrowings (ECBs) for USD 1.516 billion. The Reserve Bank’s target stands at USD 90 billion.

Hidden Conditions and Limitations of the RBI Dollar Swap Scheme

1. RBI Swap Is Available Only in US Dollars

Although the loan may have been raised in any currency, the swap with the Reserve Bank is possible only in United States dollars. Institutions that have borrowed in euros, yen, Deutsche Mark or other currencies must first convert their currency into dollars, which may give rise to additional exchange risk and cost.

2. RBI Forex Swap Is Restricted to Specified Institutions

The facility is confined solely to public-sector undertakings and Authorised Dealer Category-I banks. Private-sector companies cannot avail themselves of the scheme directly; they may derive only an indirect benefit through banks, and that too subject to the willingness of the banks concerned.

3. Refinancing of Existing ECBs Is Excluded

The facility does not apply to external commercial borrowings that carry options, or that have been raised for the refinancing or repayment of existing external commercial borrowings. In other words, borrowings raised for the purpose of repaying an old loan afresh will not enjoy the benefit of this scheme.

4. RBI Imposes Declaration and Compliance Requirements

Banks are required to submit, on a weekly basis and through their authorised signatories, a declaration in respect of the eligible ECB/overseas borrowing inflows received, to the effect that the facility is being used solely for the hedging of eligible flows. This increases the administrative burden of compliance.

5. Swap Amount Must Be Repaid at Maturity

In the reverse leg of the swap, banks can recover their dollars only upon returning the rupee funds, together with interest (inclusive of the swap premium), to the Reserve Bank. This means that the concession is not permanent, but rather a temporary arrangement bound by conditions.

6. RBI Swap Scheme Has a Strict Borrowing Cut-Off Date

The scheme will not apply to borrowings raised after 31 December 2026. Consequently, institutions that fail to complete their fund-raising within this period will not obtain the benefit of the concession — a circumstance that may induce a degree of haste.

Conclusion: RBI Dollar Swap Scheme Offers Benefits but Eligibility Is Critical

Viewed as a whole, this Dollar Swap Scheme of the Reserve Bank is undoubtedly advantageous for eligible government undertakings and banks — particularly by reason of the substantial saving in hedging cost and the simplicity of the process. The scheme is not, however, open to all without distinction; it is bound by specific eligibility criteria, currency restrictions and time limits. For those institutions that satisfy these criteria, it may indeed prove to be a genuine golden opportunity. Private-sector companies, however, and borrowers falling outside these criteria, would be well advised to maintain realistic expectations — for the limitations of this scheme are as firm as its benefits are clear.

Foreign Borrowing Decisions Must Consider Currency Risk and Cash Flows

The Reserve Bank’s Dollar Swap Scheme is not merely a scheme to reduce hedging cost; it is an endeavour to render India’s external-financing architecture more stable. Enterprises, nevertheless, ought not to raise foreign borrowings on the strength of a lower interest rate alone. A decision should be taken only after a thorough study of the tenure of the loan, the foreign-currency earnings, the cash flow of the project, the availability of hedging and the eligibility conditions prescribed by the Reserve Bank. Long-term foreign borrowing, undertaken with appropriate planning, can certainly prove advantageous for enterprises; but if its conditions are disregarded, that very borrowing may, in future, become a financial burden.