The 2013 RBI FCNR(B) Swap Window

Background, rupee impact, and a 13-year retrospective (2013–2026)

1. Background: The 2013 Taper Tantrum Crisis

In mid-2013, the Indian rupee came under severe pressure as the US Federal Reserve signalled a tapering of its quantitative easing programme - the “taper tantrum.” Capital fled emerging markets, and the rupee fell from roughly ₹55 in May 2013 to an intraday low of ₹68.85 on 28 August 2013, a depreciation of nearly 22% in three months and India’s worst currency crisis since 1991.

On 4 September 2013, his first day as RBI Governor, Raghuram Rajan announced a package of measures to stem the slide. The centrepiece was a special concessional swap window for fresh Foreign Currency Non-Resident Bank (FCNR-B) deposits, alongside an enhanced overseas borrowing limit for banks (raised from 50% to 100% of Tier-I capital).

2. The FCNR(B) Scheme and Resulting Inflows

Under the scheme, banks could mobilise fresh FCNR(B) deposits with a minimum three-year tenure and swap the dollars with the RBI at a fixed concessional rate of 3.5% per annum — well below the prevailing market hedging cost. The RBI absorbed the difference, effectively subsidising the currency risk and making the deposits highly attractive to NRIs and overseas banks operating with dollar funding costs of just 1-2%.

A hard deadline of 30 November 2013 created urgency. The response far exceeded expectations:

RBI had originally expected to raise only about $10 billion; the eventual ~$30 billion (FCNR-B plus related borrowing) was triple that estimate. Importantly, the announcement itself - backed by a firm deadline - triggered short-covering by speculators, amplifying the stabilising effect well beyond the dollar inflows alone.

One important caveat: only a fraction of the $26 billion represented genuine new NRI savings. A large share was overseas bank money channelled to NRIs as leveraged deposits - NRIs borrowed heavily against their home-country credit lines (at ~1-2%) to fund deposits in India earning ~9%, locking in US-dollar IRRs in the high teens to high twenties once leverage and the RBI's hedge subsidy were factored in.

3. Rupee Movement: September 2013 to September 2016

The immediate effect was a sharp and sustained appreciation. From the crisis peak of ₹68.85 (28 Aug 2013), the rupee strengthened to close FY2014 at ₹59.91 (28 Mar 2014) - an eight-month high and a roughly 13% appreciation in just over six months, making INR one of the best-performing Asian currencies of that period.

Figure 1: USD/INR in the three years following the FCNR(B) announcement. The rupee appreciated sharply through early 2014, then gradually depreciated back toward pre-crisis levels by the time the three-year deposits matured.

From mid-2014 onward, the rupee drifted in a ₹59–64 range through 2014, then weakened further through 2015 as China's slowdown, a strengthening dollar (on Fed rate-hike expectations), and falling commodity prices renewed pressure on emerging-market currencies. By September 2016 - when the three-year FCNR(B) deposits matured and Rajan's term ended - USD/INR was back around ₹67, almost exactly where it stood when he took office.

4. Was the Measure Successful?

On its own terms, yes - decisively so:

•       It comfortably exceeded its target: RBI expected ~$10 billion and received roughly $30 billion.

•       It halted a disorderly currency collapse and restored confidence almost immediately; the rupee's recovery to ₹59.91 by March 2014 was one of the sharpest turnarounds among emerging-market currencies at the time.

•       The redemption of the deposits in September 2016 - widely feared as a potential “taper tantrum 2.0” - passed without disruption. RBI had hedged about 80% of the deposits in the forward market and held $365 billion in reserves, more than enough to cover the full $20–billion expected outflow.

•       Rajan later summarised: the RBI was “fully covered for outflows… and made money on the deal,” and the rupee had been “one of the most stable emerging market currencies” in the years since.

5. Was There Merit in Doing So?

The case for the scheme

RBI's internal cost-benefit math, as later described by Rajan, was straightforward: the concessional swap was estimated to cost the central bank ₹10,000–20,000 crore, but the resulting rupee appreciation was expected to cut India's annual import bill by roughly ₹1.6 lakh crore - an 8-16x potential payoff. Rajan called it an “iffy scheme” and a “measured risk”: a probability the RBI itself would lose money, a certainty that banks would profit, but a reasonable chance the country as a whole would be significantly better off. In hindsight, it worked.

The criticisms

•       Not genuine NRI inflows: much of the $26 billion was overseas bank money routed through NRI accounts as leveraged deposits - a financial-engineering trade rather than diaspora capital genuinely returning to India.

•       A hidden, unequal subsidy: the concessional hedge was not available to other legitimate foreign-currency borrowers, including India's own quasi-sovereign infrastructure financiers (IRFC, PFC, IIFCL, EXIM Bank), raising fairness and efficiency questions about who captured the benefit.

•       Favourable, possibly non-repeatable conditions: the scheme's economics depended on a large interest-rate arbitrage - US short rates of 1–2% versus Indian deposit rates of ~9%, a spread of 5.5–6 percentage points. Replicating this in a higher global-rate environment is far harder (a similar 2025–26 scheme saw the arbitrage shrink to ~1.5 percentage points).

Overall assessment

On balance, most independent assessments — including Rajan's own — view the scheme as the right call for a genuine balance-of-payments emergency: it was fast, large, credible (backed by a deadline), and ultimately profitable for the RBI. The legitimate critique is less about whether to act and more about how the benefits were distributed — a structural subsidy captured disproportionately by banks and leveraged depositors rather than the broader economy or other genuine forex borrowers.

6. Rupee Movement After 2016: The Long-Term Trend

Zooming out, the FCNR episode looks like a successful short-term stabiliser within a much longer secular depreciation trend driven by India's persistent current account deficit, inflation differentials with the US, and the dollar's reserve-currency dominance.

Figure 2: USD/INR from the 2013 crisis through mid-2026. The green segment shows the FCNR-driven rescue and reversal (2013–16); the orange segment shows the subsequent long-run depreciation.

•       2017: The rupee's best year in recent history, strengthening from ₹68 to ₹64 (about +6%) on strong FII inflows and macro stabilisation.

•       2018: A sharp reversal - USD/INR rose over 9% amid the IL&FS shadow-banking crisis and a spike in crude oil prices, India's largest import bill item.

•       2019–2021: Relatively range-bound between ₹69 and ₹75, with a brief Covid-related spike in 2020.

•       2022: The worst year on record - USD/INR rose over 11% (₹74.4 → ₹82.8) as the US Fed's aggressive rate-hiking cycle pulled capital back into the dollar globally.

•       2023–2025: Gradual, managed depreciation - crossing ₹84 in late 2024 and ₹85 in early 2025, with the RBI smoothing volatility using its large reserve buffer rather than defending any fixed level.

•       2026: Further weakening into the mid-₹90s by mid-2026, alongside delays to an India–US trade deal and continued broad dollar strength.

7. Bottom Line

The FCNR(B) scheme achieved exactly what it was designed to do: it stopped a panic, brought in far more dollars than expected, drove a rapid ~13% rupee appreciation, and unwound itself three years later without incident - while leaving the RBI modestly profitable on the trade. Judged as crisis management, it was a clear success and there was sound (if risk-laden) economic logic behind it.

However, the scheme could not and was never going to alter the rupee's structural trajectory. From ₹67 when the deposits matured in September 2016, the rupee has since depreciated by roughly 40% to the mid-₹90s by mid-2026, driven by persistent trade deficits and a structurally strong dollar. The 2013 intervention is best understood as a successful circuit-breaker for an acute crisis — not a turning point in INR's long-term direction.

Sources: RBI statements and speeches (2013–2016), Business Standard, SPJIMR commentary (Prof. Ananth Narayan), and exchange-rate data compiled from public market sources. Figures for 2025–26 reflect latest available data as of June 2026.