Indian banks have approached the RBI seeking clarity on whether overseas branches can lend to NRIs who then place proceeds as FCNR(B) deposits with the same bank's Indian entity. SBI has already launched a leveraged foreign-currency demand loan product, using FCNR(B) deposits as collateral. RBI's special swap window, effective June 8, covers deposits mobilised until September 30, 2025, with the swap facility open until October 16, 2025. Banks want explicit regulatory comfort before mass-marketing such leveraged FCNR structures.

FCNR(B) — Foreign Currency Non-Resident (Banks) — deposits are a key instrument for attracting diaspora forex into India. Unlike NRE/NRO accounts, FCNR(B) deposits are held in foreign currency, shielding NRI depositors from INR depreciation risk. When the rupee is under pressure or India needs forex reserves, the RBI has historically activated special windows to encourage FCNR(B) mobilisation — it did so in 2013 and again in 2025.

The current controversy centres on a leveraged FCNR structure: an NRI borrows in foreign currency from an overseas branch of an Indian bank, then parks that borrowed money as an FCNR(B) deposit with the same bank's Indian entity. The deposit is pledged as collateral for the loan, creating a circular flow. The bank earns on the spread; the NRI gains from the interest rate differential and potential currency play.

The regulatory ambiguity arises because RBI's master circular on deposit mobilisation may prohibit banks from creating deposits by lending to the same customer — a multiplier concern. However, SBI argues no explicit bar exists in the latest FCNR(B) scheme circular. The RBI's bespoke swap facility reduces hedging costs for banks, making these deposits more attractive. A formal clarification from RBI could unlock significant forex inflows before the September 30 deadline, but silence creates compliance risk for smaller banks unwilling to follow SBI's lead without explicit approval.