When the Reserve Bank of India (RBI) closed its concessional FCNR(B) swap window on August 31, 2026, one month ahead of schedule, it reignited debate over the true cost of the scheme.Critics have zeroed in on the burden of elevated USD/INR forward premia, which touched more than 1,500 basis points for five-year tenors. Yet, much of the discourse has been speculative, often disconnected from the operational realities. A closer look suggests that while the scheme is not without cost, its benefits outweigh the risks, leaving RBI with a net positive balance sheet impact.The FCNR(B) swap window was designed to attract foreign currency deposits at concessional swap rates, thereby bolstering India’s external position. In just 85 days, the scheme mobilised an extraordinary $127.2 billion.Costs vs returnsAssuming a realistic distribution of deposits, i.e., 40 per cent in three-year tenors, 10 per cent in four-year, and 50 per cent in five-year, the hedging cost and investment yield calculations remain broadly stable even with minor deviations. This assumption reflects depositor preference for longer tenors in a high global interest rate environment, while shorter buckets catered to leveraged positions and immediate obligations.During the scheme period (June 8-August 31), the average forward premia stood at 2.93 per cent for three-year tenors and 3.23 per cent for five-year tenors.By contrast, US Treasury yields averaged 4.23 per cent and 4.33 per cent respectively.RBI, as the central bank, likely secured better than market swap rates, meaning our estimates err on the conservative side. Similarly, while RBI invests primarily in liquid, low-risk assets, not all inflows would be parked in US treasuries, marginally lowering returns. Even so, the numbers are compelling.Hence, under the best possible scenario, hedging cost was $16.3 billion, while investment income was $22.4 billion, net surplus was $6.1 billion (₹58,372 crore at current exchange rates). [Table 1]This surplus underscores that the scheme was not a fiscal drag but a calculated intervention yielding tangible gains.Liquidity dynamicsThe concessional swaps injected nearly ₹12 trillion of rupee liquidity into the banking system, offering much relief to banks to lend to the productive sectors of the economy, easing the elevated C-D ratio constraint, banks may need couple of quarters to use these surplus funds. However, RBI’s continued forex interventions in selling dollars to control rupee volatility and unwinding its forward book have absorbed much of this surplus.Indeed, despite $136 billion in foreign capital inflows (including FCNR, ECB, and OFCB), reserves rose by only $59.2 billion as forex kitty grew from 681.6 billion (June 5) to $740.8 (August 28). The rest was offset by intervention and forward settlements. Overnight rates slipped below the repo rate, with call money at 4.95 per cent and TREPS at 4.45 per cent, highlighting the challenge of keeping liquidity within RBI’s comfort zone of 0.5-1 per cent of NDTL. As of mid-August, durable surplus liquidity stood at ₹8.06 lakh crore, forcing RBI into sterilisation operations at a cost.RBI’s short dollar forward position is currently over $100 billion, with $40 billion maturing within a year. As these positions unwind, liquidity will automatically contract. Meanwhile, surplus liquidity has already nudged banks toward government securities, pushing yields lower and reducing borrowing costs for the government, a secondary benefit of the scheme.Looking ahead, September and October traditionally strain liquidity. Festive season withdrawals, advance tax payments, credit growth, capex revival, government borrowing, and import payments ahead of Diwali will all absorb liquidity. This seasonal tightening reduces the need for permanent sterilisation mechanisms like the Market Stabilisation Scheme (MSS) of 2004.Instead, RBI can rely on incremental CRR hikes (as banks benefitted from FCNR swap scheme and the amount is temporarily exempt from CRR and SLR requirement), longer-term VRRRs, and open market operations (OMOs) to manoeuvre liquidity. These tools provide flexibility without locking the system into enduring sterilisation costs.Sterilisation costsEven if RBI must sterilise liquidity for up to a year, the costs remain manageable. With surplus liquidity between ₹3-8 trillion and sterilisation rates of 5.3-5.7 per cent (91-day and 364-day T-bills), the one quarter sterilisation cost would range from ₹3,975 crore to ₹10,600 crore and annual sterilisation cost ranges from ₹17,000 crore to ₹45,600 crore.Against the FCNR(B) surplus of ₹58,372 crore, RBI still nets a positive balance of ₹12,772–₹54,397 crore [Table 2].A net positiveThe FCNR(B) swap window has achieved its objectives of attracting foreign capital inflows at scale, strengthening the balance of payments, providing banks with liquidity to support credit growth and, reducing government borrowing costs through lower yields.The beauty of the scheme lies in its cost neutrality across stakeholders, RBI, government, banks, depositors, and ultimately the economy. While sterilisation costs are real, they are temporary and outweighed by the benefits.In a global environment of tightening liquidity and volatile capital flows, RBI’s decision to front-load inflows through FCNR(B) was both prudent and necessary. The early closure of the window signals confidence. The objectives have been met, reserves strengthened, and liquidity manageable.The debate over costs should not obscure the larger truth the — FCNR(B) scheme was a net positive intervention, reinforcing India’s financial stability at a critical juncture.The writer is Visiting Fellow, LSE; and DGM (Economist), State Bank of India. Views expressed are personalPublished on September 10, 2026