Who actually owes whom?
FCNR(B) deposits look like one giant national debt number. The article’s key idea is simpler: draw the contracts first, then assign each obligation to the right party.
1. The headline hides the wiring
A headline says “$127bn of FCNR(B) deposits.” That number alone does not tell you who borrowed, who holds the dollars, or who carries which risk.
2. There are three parties
The author’s model separates the NRI depositor, the Indian bank, and the RBI. The arrows matter more than the labels.
The deposit and the FX swap are connected, but they are not the same contract.
3. What happens to $1,000?
Follow one deposit through time. The bank gets rupees to lend; the NRI still expects dollars back.
4. The exchange-rate twist
The swap rate is agreed today. The market rate five years later may be different. That difference changes the RBI’s result on the swap leg.
Dollar becomes more expensive
Agreed rate in the example: ₹96. Difference: ₹9 × $1,000 = ₹9,000. The article calls this risk, not automatically a loss.
Dollar becomes cheaper
At this rate, the author says the RBI could make money on the swap outcome. The same contract can move either way.
5. What the article is not saying
A currency swap does not make every risk disappear. It changes which institution faces which exposure.
Bank still has
• A promise to repay the NRI
• Loans made with the rupees
• Credit risk if borrowers default
• The job of finding the interest dollars
RBI has
• The other side of the FX swap
• An exchange-rate outcome at settlement
• A position backed by its wider dollar-reserve context, as the author frames it
6. The useful habit
When you see a huge financial headline, do not ask only “how big is it?” Ask “who owes whom, under which contract?”
That is the article’s core mental model: follow the arrows before judging the headline.