India gets record $127 billion under FCNR window

Non-resident Indians (NRIs) have poured $127.2 billion into Indian banks through foreign currency non-resident (FCNR) deposits under a new deposit incentive scheme to attract dollars and strengthen the rupee.

This is nearly five times the inflows seen in 2013, when a similar scheme was launched.

Announced on 5 June and rolled out three days later, the scheme allowed NRIs to make leveraged deposits and ran till the end of August, with the central bank taking the hedging risk, offering overseas investors the potential to earn up to 14% return on their money.

The Reserve Bank of India (RBI) on Wednesday said its dollar swap facility received a total of $136.4 billion till 31 August, with FCNR-B deposits accounting for the lion’s share. Apart from FCNR(B) deposits, the swap window also received $5.3 billion in overseas foreign currency borrowings and $3.9 billion through external commercial borrowings. Commercial banks exchange dollars for rupees at the swap window at guaranteed rates.

As of 21 August, total inflows under the three swap windows had reached $72.85 billion, including $65.4 billion through FCNR(B), $4.86 billion through OFCBs and $2.59 billion through ECBs. The RBI also advanced the FCNR(B) closure date to 31 August from 30 September, citing the “encouraging response”. Swaps against eligible deposits, however, can continue with the RBI until 11 September.

Mint reported on 1 September that large inflows have allowed the RBI to build reserves and given it greater flexibility to intervene. As of 27 February, India’s foreign exchange reserves were at $728 billion, a day before the US-Israel-led war on Iran began. It further depleted to $681 billion as of 5 June and stood at $729 billion as of 21 August, RBI data showed.

“As the FCNR(B) scheme comes to an end, the cumulative flow has shown considerable traction in the second half of August, as reflected in surplus rupee liquidity balance of ₹7.76 trillion as of 1 September,” HDFC Bank economists Sakshi Gupta and Divya Srinivasan said in a note on Wednesday.

These economists said that the large inflows mobilised under the RBI’s FCNR(B) deposit and overseas borrowing measures are likely to more than compensate for the weak capital flows recorded in Q1 and support an overall BoP surplus in FY27.

In FY26, India’s BoP recorded a 14-year low deficit of 0.6% of GDP. With the dollar inflows, it is expected to post a surplus of over $50 billion in FY27, with the current account deficit (CAD) likely contained at 1% of GDP.

“It is important to recognise that this represents a future dollar-denominated debt liability, with an indirect fiscal cost through lower RBI dividends—potentially amounting to over Rs1 trillion cumulatively,” said Madhavi Arora, chief economist, Emkay Global.

Arora said that the funds raised therefore need to be deployed judiciously and productively to mitigate these first-order costs.