RBI Permits AD Cat-I Banks to Exclude FCNR(B), ECB & OFCB Swap Positions from NOP-INR Limit Calculations

Overview

The Reserve Bank of India has issued A.P. (DIR Series) Circular No. 13 dated June 8, 2026, extending a significant regulatory accommodation to Authorised Dealer Category-I (AD Cat-I) banks concerning their Net Open Position (NOP)-INR limit compliance obligations. This circular, issued under the authority of the Foreign Exchange Management Act (FEMA), 1999, carves out a specific exclusion for swap positions that arise from three designated foreign currency instruments — FCNR(B) deposits, External Commercial Borrowings (ECBs), and Overseas Foreign Currency Borrowings (OFCBs) — when these are entered into pursuant to RBI's newly launched special swap facilities.

The directive is closely connected to two simultaneously released circulars — FMOD.MAOG.No.S-56/01.06.016/2026-27 and FMOD.MAOG.No.S-57/01.06.016/2026-27, both dated June 8, 2026 — which introduced the respective swap facilities for FCNR(B) deposits and for ECBs/OFCBs. Together, these measures form part of RBI's broader strategic effort to attract foreign currency inflows, strengthen liquidity in the domestic forex market, and streamline the operational implementation of its exchange rate management framework.

Background and Regulatory Context

What Are NOP-INR Limits?

The Net Open Position (NOP) limit is a prudential exposure ceiling placed on banks to restrict the extent to which they can hold unhedged foreign currency positions. AD Cat-I banks, which are licensed to undertake the full range of foreign exchange transactions, are required to keep their aggregate net open positions — both in foreign currency and relative to the Indian Rupee — within limits prescribed by the RBI.

These limits are primarily governed by the framework set out under A.P. (DIR Series) Circular No. 24 dated March 27, 2026, which lays down the overarching prudential structure for foreign exchange exposure management by banks operating in India.

When banks participate in swap arrangements — particularly those involving conversion of foreign currency into INR or vice versa — the resulting swap positions can significantly affect their NOP computations, potentially pushing them towards or beyond the prescribed ceilings.

Why This Circular Became Necessary

With RBI announcing two fresh swap facilities specifically targeting inflows through FCNR(B) deposits and ECB/OFCB routes, there arose a practical regulatory concern: banks willing to participate in these special facilities would inevitably generate swap positions that, under the existing calculation methodology, would count against their NOP-INR limits.

Without appropriate relief, this would have had a chilling effect on bank participation — either forcing banks to manage down their existing forex positions to accommodate new swap exposures, or deterring them from engaging with the RBI's special facilities altogether. Either outcome would have undermined the very objectives that the swap facilities were designed to serve.