2 days ago
India’s FCNR-B Scheme Raises Forex Through Costly Funds
India wanted to increase the amount of foreign money it held.
The Reserve Bank of India offered people living abroad a special deposit plan called FCNR-B.
The plan promised interest in dollars and allowed the money to be taken back abroad with interest.
It also protected depositors from changes in currency values.
The plan attracted $127.2 billion very quickly.
However, the article says the money could be expensive for India because it had to pay interest and bear currency risks.
Some depositors could borrow money abroad and place it in India repeatedly to earn a small difference in interest rates.
The RBI therefore ended the plan early, according to the article.
The Reserve Bank of India introduced an FCNR-B deposit scheme on 8 June 2026 to attract additional foreign exchange from NRIs.
The scheme reportedly drew $127.2 billion and helped raise India’s forex reserves to a record $740.8 billion by 31 August 2026.
The RBI reportedly closed the scheme early on 31 August, one month before its scheduled 30 September closing date.
The article estimates the five-year cost of raising the funds at $19.08 billion, excluding banks’ interest and servicing costs.
The scheme allowed tax-free, dollar-repayable deposits and leverage of up to 19 times, potentially enabling NRIs to earn arbitrage profits.
- Who
- The Reserve Bank of India and non-resident Indians were the main participants; Indian banks and overseas lenders were also involved.
- What
- The RBI introduced and then prematurely closed an FCNR-B foreign-currency deposit scheme that attracted $127.2 billion.
- Where
- The deposits were held in India, while NRIs could borrow through overseas accounts, including in Singapore.
- When
- The scheme began on 8 June 2026 and was closed on 31 August 2026, rather than its scheduled 30 September 2026 end date.
- Why
- The scheme was intended to strengthen India’s foreign-exchange reserves and provide protection against the effects of war and currency fluctuations.
Key facts
- Funds attracted
- $127.2 billion flowed into FCNR-B deposits, according to the article.
- Forex reserves
- India’s reserves reached $740.8 billion on 31 August 2026.
- Scheme duration
- Introduced on 8 June 2026 and closed on 31 August 2026.
- Estimated five-year cost
- $19.08 billion, or more than $3.8 billion annually, before additional bank interest and servicing costs.
- Deposit features
- Funds and interest were freely repatriable, tax-free in India, and repayable in dollars.
- Leverage allowance
- NRIs were reportedly allowed to leverage deposits up to 19 times.
- Illustrative interest spread
- The article uses a 5% Indian deposit rate and a 4% overseas borrowing rate to illustrate a 1% arbitrage spread.
Quotes
The Times of India report
A newspaper report cited by the article in its discussion of FCNR-B leverage.
“The borrowed funds could then be placed as FCNR (B) deposits, allowing the borrowers to earn a spread of 1 per cent between their borrowing cost and the return on deposits.”
thestatesman.com
Sources
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