FCNR(B) deposits surge $65.4 billion, pushing India’s forex reserves to a record $729.33 billion

India’s foreign exchange reserves surged to a record $729.33 billion in the week ended August 21, supported by a sharp increase in Foreign Currency Non-Resident (Bank), or FCNR(B), deposits under the Reserve Bank of India’s concessional swap facility. The latest reserve level surpassed the previous all-time high of $728.49 billion recorded on February 27, just a day before the US and Israel attacked Iran. The ensuing West Asia conflict pushed global energy prices higher and increased pressure on India’s external account.

Forex reserves rise $12.42 billion

According to the latest RBI data, forex reserves rose by $12.42 billion in the week ended August 21, from $716.91 billion a week earlier.

A major contributor to the recent build-up has been the RBI’s special FCNR(B) swap window, under which banks can mobilise foreign-currency deposits from non-resident Indians at attractive interest rates. The facility has allowed banks to offer rates of up to 7.4% to NRIs, encouraging a significant inflow of overseas funds.

Between June 8, 2026, when banks began mobilising resources under the concessional swap facility, and August 21, FCNR(B) deposits recorded an accretion of $65.397 billion, according to RBI data. The total outstanding FCNR(B) deposits had stood at $34.04 billion at the end of May.

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RBI gains more room to support rupee

The scheme has also helped boost dollar liquidity in the banking system while limiting the immediate exchange-rate risk for participating banks. Higher forex reserves, in turn, strengthen the RBI’s ability to intervene in the currency market and contain disorderly movements in the rupee.

Manoranjan Sharma, Chief Economist at Infomerics Ratings, told BusinessLine the record reserve accumulation primarily reflected an exceptional inflow episode rather than a structural improvement in India’s trade balance.

“The RBI’s June measures to strengthen the balance of payments, especially incentives and facilities that attracted overseas foreign-currency inflows, including NRI/FCNR(B)-related deposits, brought substantial dollars into the banking system,” Sharma said.

He added that the RBI absorbed part of these flows, including through discounted foreign-exchange swaps, instead of allowing an abrupt appreciation of the rupee.

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Rupee remains under pressure

The central bank’s latest measures come against the backdrop of persistent pressure on the rupee. Foreign portfolio investors have withdrawn around $19 billion from Indian markets in 2025 and another $24 billion during the first five months of 2026. The rupee had approached ₹97 to the US dollar in mid-May and remains around 8.1% weaker than a year earlier.

Under the concessional swap facility, banks and public sector undertakings also raised $4.860 billion through overseas foreign-currency borrowings and $2.591 billion through external commercial borrowings.

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Record reserves do not remove structural risks

Sharma said the reserve build-up provides a stronger external shock absorber, helping the RBI manage rupee depreciation, finance essential imports during oil-price or geopolitical shocks and reassure global investors.

However, he cautioned that deposit-led inflows also create external liabilities and could reverse when incentives expire or global yields change. “The record stock improves near-term stability, but should not mean that structural current-account vulnerabilities, especially oil dependence, have disappeared—no way!” he said.