5 days ago
FCNR(B) inflows reach $133 billion, boosting reserves but straining liquidity
People and companies outside India put about $133 billion into special FCNR(B) bank deposits.
These deposits bring foreign currency into India’s banking system.
This helped increase India’s foreign-exchange reserves and supported the rupee somewhat.
However, the money also created a very large surplus of rupees in banks.
The surplus was about Rs 10 lakh crore.
The Reserve Bank of India said it would sell government securities to remove some of this extra money.
Bank lending and deposits both grew quickly during the period.
The rupee still weakened because oil prices rose and the US dollar strengthened.
FCNR(B) deposits reached $132.9 billion by September 10, up from the RBI’s official $127.2 billion figure for August 31.
The final tally is expected to be about $133 billion after the deposit window closed on August 31.
The inflows increased foreign-exchange reserves and supported rupee stability, but created a rupee liquidity surplus of about Rs 10 lakh crore.
The RBI announced a Rs 1 lakh crore government-securities sale to absorb excess liquidity.
By August 31, bank credit growth rose to 20.1% and deposit growth to 18.6%, with deposits reaching Rs 278.7 lakh crore.
- Who
- Indian banks, depositors using the FCNR(B) scheme, and the Reserve Bank of India.
- What
- FCNR(B) inflows reached $132.9 billion, while the RBI moved to absorb resulting excess rupee liquidity.
- Where
- India’s banking and foreign-exchange markets.
- When
- The figure was reported for September 10; the deposit window closed on August 31, and the RBI swap facility was available through September 11.
- Why
- The inflows boosted foreign-exchange reserves and supported the rupee, but also produced a large rupee liquidity surplus requiring RBI intervention.
Benefits of FCNR(B) inflows
Costs and concerns from inflows
Foreign-exchange impact
Benefits of FCNR(B) inflows
The inflows increased India’s foreign-exchange reserves and helped stabilise the rupee to some extent.
Costs and concerns from inflows
The rupee still weakened to 95.96 against the US dollar as crude oil prices rose and the dollar strengthened.
Banking-system liquidity
Benefits of FCNR(B) inflows
Higher deposits supported a sharp acceleration in deposit growth and helped expand available bank funding.
Costs and concerns from inflows
The inflows created a rupee liquidity surplus of about Rs 10 lakh crore, prompting the RBI to absorb excess funds and consider further tightening measures.
Key facts
- FCNR(B) inflows
- $132.9 billion by September 10
- Previous official figure
- $127.2 billion as of August 31
- Rupee liquidity surplus
- About Rs 10 lakh crore
- RBI liquidity operation
- Sale of Rs 1 lakh crore in government securities
- Foreign-exchange reserves
- $786 billion for the week ended September 4
- Credit growth
- 20.1% year-on-year as of August 31
- Deposit growth
- 18.6% year-on-year as of August 31
Sources
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