1 hr ago
India Draws Record $127 Billion Through FCNR Deposit Scheme
India created a special program to attract dollars from Indians living abroad.
These people put money into Indian banks using FCNR(B) deposits.
The program offered attractive returns and let the central bank take on the risk of protecting against currency changes.
By 31 August, FCNR(B) deposits had brought in $127.2 billion.
All three related swap programs together brought in $136.4 billion.
The dollars helped India increase its foreign-exchange reserves and gave the RBI more room to support the rupee.
Economists said the money could help India record a large external surplus in FY27.
However, the deposits are also future debts that India will need to repay in dollars.
One economist warned that the program could reduce RBI dividends and create a significant indirect cost for the government.
NRIs placed $127.2 billion in Indian banks through FCNR(B) deposits under a temporary incentive scheme.
The scheme was announced on 5 June, launched three days later, and closed early on 31 August.
The RBI said total inflows across three swap windows reached $136.4 billion by 31 August.
The inflows helped rebuild foreign-exchange reserves, which stood at $729 billion on 21 August.
Economists said the funds could support a FY27 balance-of-payments surplus, but create future dollar liabilities and fiscal costs.
- Who
- Non-resident Indians, Indian commercial banks, the Reserve Bank of India, and economists cited by HDFC Bank and Emkay Global.
- What
- A temporary FCNR(B) deposit and foreign-currency swap program attracted $127.2 billion through FCNR(B) deposits and $136.4 billion across three swap windows.
- Where
- Through Indian banks and the Reserve Bank of India’s swap window.
- When
- The scheme was announced on 5 June, launched three days later, and closed on 31 August; eligible deposit swaps could continue until 11 September.
- Why
- To attract dollars, strengthen the rupee, rebuild foreign-exchange reserves, and provide banks with foreign-currency funding.
Benefits and Support
Risks and Costs
Foreign-exchange and rupee support
Benefits and Support
The RBI and cited HDFC Bank economists said the large dollar inflows rebuilt reserves, increased intervention flexibility, and supported rupee liquidity.
Risks and Costs
The article notes that the inflows also created surplus rupee liquidity of ₹7.76 trillion as of 1 September, which could leave banks with more funds than they need.
External balance
Benefits and Support
HDFC Bank economists said the deposits and overseas borrowing measures could offset weak first-quarter capital flows and help produce a FY27 balance-of-payments surplus above $50 billion.
Risks and Costs
The funds represent future dollar-denominated debt liabilities rather than permanent capital, according to Emkay Global economist Madhavi Arora.
Fiscal implications
Benefits and Support
The scheme offered overseas investors potentially attractive returns of up to 14% and successfully generated substantial dollar inflows.
Risks and Costs
Arora said the scheme could reduce RBI dividends and create an indirect fiscal cost potentially exceeding ₹1 trillion cumulatively.
Key facts
- FCNR(B) inflows
- $127.2 billion by 31 August
- Total swap-window inflows
- $136.4 billion by 31 August
- Other inflows
- $5.3 billion through overseas foreign currency borrowings and $3.9 billion through external commercial borrowings
- Scheme period
- Announced on 5 June, launched three days later, and closed on 31 August
- Foreign-exchange reserves
- $729 billion as of 21 August, compared with $681 billion on 5 June
- Projected FY27 outcome
- Economists cited in the report expect a balance-of-payments surplus exceeding $50 billion and a current-account deficit near 1% of GDP
- Potential cost
- Emkay Global economist Madhavi Arora said indirect fiscal costs through lower RBI dividends could exceed ₹1 trillion cumulatively
Quotes
Sakshi Gupta and Divya Srinivasan
HDFC Bank economists
“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.”
livemint.com
“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.”
livemint.com
Sources
Related news
FCNR(B) Inflows Cross $100 Billion as RBI Closes Window
RBI Forex Swap Attracts Record $136.37 Billion Inflows
RBI Forex Swap Facility Draws $72.85 Billion in Inflows
RBI Forex Swap Draws $73 Billion in Inflows
RBI Forex Swap Draws $136.4 Billion, Led by FCNR(B) Deposits
India’s Foreign Currency Facility Draws $72.85 Billion
Major Banks Cut FCNR Deposit Rates After Subsidy Ends
Uber Driver Returns ₹37,000 Sent by Mistake, Refuses Reward
ICICI Bank Nears HDFC Bank as Nifty’s Top Influence
Brokerages Suggest HDFC Bank, PB Fintech, Parag Milk Foods
