The Reserve Bank of India (RBI) uses a swap mechanism tied to FCNR(B) deposits to address currency risk. Multiple explanations focus on how this design divides responsibilities between the central bank and banks, rather than eliminating all risk for lenders and deposit holders.
According to the account described, the RBI swap protects banks from currency risk on the principal amount. However, banks still have to manage the dollar-linked interest payments themselves. This means the bank’s net exposure can differ depending on how it hedges or funds those interest outflows, and some institutions may remain exposed if the rupee weakens against the US dollar.
The differing emphasis across outlets is largely on where the remaining risk sits: while the swap reduces the impact of exchange-rate movements on the principal, it does not fully cover currency effects on interest. The overall context is that FCNR(B) deposits involve foreign-currency components, and the allocation of hedging responsibilities affects banks’ risk management and potential sensitivity to currency movements.
