Banks raised more than $17 billion through concessional foreign currency non-resident bank deposits after the Reserve Bank of India announced a special mobilization drive on 5 June. This has fuelled optimism that the scheme could outperform the previous FCNR (B) mobilization in 2013, when the RBI used a similar strategy during the taper tantrum to attract dollar inflows and stabilize the rupee. With the special window open till 30 September, can India raise $50 billion? Mint explains.
What is FCNR (B) and how does the RBI’s swap facility work?
An FCNR (B) account allows non-resident Indians (NRIs) to keep fixed deposits in India in foreign currency, protecting both the principal and the interest from exchange-rate fluctuations. The deposits are tax-free in India and freely repatriable.
On 5 June, the RBI allowed banks to raise fresh and renewed FCNR (B) deposits with maturities of three to five years and swap those dollars with the central bank at a concessional rate. By absorbing the foreign exchange hedging cost, the RBI has removed a key expense for banks, enabling them to offer higher dollar deposit interest rates to attract overseas capital.
Why are banks so keen on FCNR (B) deposits and what are they offering?
The scheme is attractive for banks and wealthy NRIs because it combines higher deposit rates with leverage. Lenders such as State Bank of India and HDFC Bank offer 6-6.5% on dollar deposits. Several banks also allow eligible customers to leverage their capital by up to nine times, while some overseas partner banks offer leverage of up to 19 times.
For investors, borrowing overseas at lower rates and investing the combined amount in higher-yielding FCNR (B) deposits can generate equity-like returns. Analysts expect the scheme to eventually attract $45-55 billion if leveraged deposits gain traction.
What prompted the RBI to announce this scheme?
The RBI introduced the scheme to strengthen India’s balance of payments, support the rupee and encourage stable foreign currency inflows amid rising global uncertainty. The rupee has fallen more than 3% so far this financial year and 11% in FY26. A Mint poll of eight economists on 7 July suggested the currency may remain in the 94-96 range against the US dollar in the near term before weakening again by March 2027.
Has the scheme worked so far, and can it meet expectations?
The RBI’s latest data shows banks mobilized $17.41 billion through FCNR (B) deposits as of 17 July. Market expectations are for a total of $45-55 billion compared with $26 billion raised in 2013.
“RBI’s information will provide significant comfort to the market on India’s balance of payments, as concerns about slow take up around RBI measures will fade, and underlying BoP being close to or in a surplus will grow,” BoFA Securities said in a 21 July report.
While mobilization has accelerated, bankers said it is still too early to judge whether the scheme will meet expectations. They expect inflows to gather pace in August and September as banks increase deposit rates, complete overseas funding arrangements and intensify the outreach to NRIs ahead of the 30 September deadline.
What are the biggest challenges for the scheme?
Executing leveraged transactions remains the biggest hurdle. Higher overseas borrowing costs and tighter credit limits have made banks more selective, with most focusing on NRIs holding deposits above $1 million. Smaller transactions have become less viable as funding costs have squeezed margins.
Additionally, bankers expect most inflows to come from the Gulf and Singapore rather than the US and the UK, where stricter tax reporting and compliance concerns following the 2013 scheme have discouraged many NRIs.
Banks also took time to finalize overseas credit lines and operational arrangements, slowing mobilization in the initial weeks.