RBI gives $50 billion boost: How FCNR(B) deposits are strengthening India’s forex position

The Reserve Bank of India’s special FCNR(B) swap facility has mobilised more than $50 billion in foreign-currency deposits, providing a significant boost to India’s external liquidity position. According to SBI Research, FCNR(B) deposits stood at $52.3 billion as of August 13, while total mobilisation including overseas foreign currency borrowings (OFCBs) and external commercial borrowings (ECBs) reached $56.8 billion.

FCNR(B) deposits cross $52 billion

The RBI had introduced the special swap facility to encourage banks to mobilise foreign-currency deposits from non-resident Indians. Under the arrangement, banks can raise FCNR(B) deposits and swap the foreign currency with the RBI for rupees.

The scale of mobilisation has increased rapidly. FCNR(B) deposits rose from $17.4 billion on July 17 to $36.7 billion on July 31 and further to $52.3 billion by August 13. Including OFCBs and ECBs, total mobilisation increased from $20.7 billion on July 17 to $56.8 billion by August 13.

This inflow strengthens the availability of foreign currency in the banking system and adds to India’s external liquidity buffer.

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RBI closes window ahead of schedule

The RBI announced on August 14 that the window for fresh FCNR(B) deposits under the special swap facility would close on August 31, a month earlier than the original September 30 deadline. SBI Research believes total FCNR(B) mobilisation could eventually reach $60–65 billion, while the combined inflow from FCNR(B), OFCBs and ECBs could reach $80–85 billion.

The early closure comes after substantial mobilisation through the facility. SBI Research estimates that the potential FCNR(B) mobilisation could reach $65–70 billion depending on final inflows.

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How much will the swap cost?

The foreign-currency deposits come with a hedging cost for the RBI. SBI Research estimates an average USD/INR hedging cost of around 3% annually. On a $70 billion corpus, this implies an annual notional hedging cost of about $2.1 billion.

If the 3% cost remains unchanged over the five-year maturity of the deposits, the cumulative cost could reach approximately $10.5 billion. However, SBI Research argues that this cost remains relatively small compared with India’s foreign-exchange reserves.

India’s foreign-exchange reserves are estimated at around $700 billion. The report estimates that the $10.5 billion five-year hedging cost would represent just 1.45% of the current reserve stock and about 1.27% of projected reserves of around $800 billion over five years.

What does it mean for the rupee?

The large foreign-currency mobilisation could also support the rupee by improving India’s external liquidity position. SBI Research expects the rupee to remain around ₹95–₹95.50 per US dollar until August 31 and believes the currency could appreciate further after the FCNR(B) window closes.

The report draws a comparison with 2013, when the rupee appreciated 4.9% by November from its August level following the earlier FCNR(B) swap programme and eventually gained 8.8% by March 2014.

For India, the immediate significance of the latest FCNR(B) mobilisation is therefore not simply the headline dollar amount. The inflows strengthen the country’s foreign-exchange liquidity, provide additional support to the rupee and add resilience at a time when global bond yields, crude prices and geopolitical risks remain elevated.

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