Mumbai: The Reserve Bank of India (RBI) said on Monday it will offer banks a dollar-rupee swap facility at a fixed cost of 1.5% per annum, with maturities of up to five years, to help hedge foreign currency borrowings by state-run firms and lenders.Under the arrangement, banks can sell US dollars to the RBI and simultaneously agree to buy back the same amount at the end of the swap period. “The swap will be undertaken at a fixed rate of 1.5% per annum compounded semi-annually,” the central bank said.The hedging cost had gone up to 3.5% to 4% for borrowers raising foreign currency borrowings from abroad. The facility, announced following Governor Sanjay Malhotra’s monetary policy statement last week, will be available for external commercial borrowings (ECBs) raised by eligible PSUs and overseas foreign currency borrowings (OFCBs) raised by banks with a minimum maturity of three years.“It has been decided to introduce a US Dollar-Rupee Forex Swap Facility for ECBs of average maturity of three years and above, drawn on after the date of this circular till December 31, 2026, by Public Sector Undertakings,” RBI said in a release late Monday evening.Bank chiefs are expecting $35-40 billion in fresh inflows through the FCNR-B window following the RBI’s move to offer this facility and bear the entire hedging cost. The central bank had offered a similar facility in 2016, which resulted in an inflow of $26 billion.To make the latest FCNR-B facility more lucrative, the RBI has exempted banks from maintaining the cash reserve ratio and statutory liquidity ratio against those deposits mobilised under the overall scheme of things. The swap facility with the central bank will be available in US dollars, while the central bank said that for the deposits mobilised in other permissible currencies, banks may arrive at the equivalent US dollar amount eligible to be swapped by converting the same at the prevailing market rates on the day of the swap deal.The tenure of the swap will be in line with the tenure of the deposits raised. Banks are, however, barred from issuing non-fund-based facilities to any entity assuring redemption or repayment of funds by any entity via deposits or bonds.“Banks would be free to price these deposits as per their internal policy, but within the overall ceiling as per the guidelines,” RBI said.