Collections under a Reserve Bank of India (RBI) scheme aimed at attracting foreign currency deposits from non-resident Indians (NRIs) have crossed the $100 billion mark. The overwhelming response has prompted the government to close the programme a month earlier than originally scheduled.
The substantial dollar inflows have helped push India’s foreign exchange reserves to a record $729.3 billion, providing a much-needed cushion as the Middle East conflict, volatile crude prices and pressure on the Indian rupee have weighed on the country’s forex position.
The RBI introduced the Foreign Currency Non-Resident (Bank), or FCNR(B), scheme in June. By August 31, inflows had surpassed $100 billion, Bloomberg reported, citing a report by The Financial Express. RBI Governor Sanjay Malhotra had initially estimated that the programme would attract around $80 billion.
The central bank closed the FCNR(B) window a month before its original September 30 deadline, amid concerns that such large inflows could create risks if the funds were subsequently withdrawn. Banks, however, will continue to be able to use the swap facility for deposits that had already been contracted until September 11.
The stronger forex position has also given the RBI greater room to intervene in currency markets and support the rupee, which has been under pressure from elevated crude oil prices.
The development comes at a time when India’s foreign exchange reserves and currency have been facing significant pressure from the US-Iran conflict and the resulting increase in global energy prices.
The Financial Times reported in early August that India had lost $46 billion in forex reserves since the conflict began in February, with reserves standing at $682 billion as of July 24. It also reported that the Indian rupee had been among Asia’s weakest-performing currencies, declining 6% against the US dollar.
By September, however, the situation had changed considerably. RBI initiatives such as the FCNR(B) programme helped lift India’s reserves to $729.3 billion.
The replenished reserves have also strengthened the RBI’s ability to support the rupee. Bloomberg reported that the currency gained as much as 0.4% on Tuesday to 94.7988 per dollar, putting it on course for its strongest level since July 1.
WHAT IS THE RBI'S FCNR(B) SCHEME?
The Foreign Currency Non-Resident (Bank), or FCNR(B), scheme allows NRIs to keep their overseas earnings in India in foreign currencies such as US dollars instead of converting them into Indian rupees.
These are fixed-term deposits in which both the principal amount and interest are paid in the foreign currency. This protects depositors from potential losses arising from fluctuations in the rupee’s value.
The RBI introduced measures to make FCNR(B) deposits more attractive after inflows fell sharply, dropping from more than $7 billion in FY25 to just $946 million in FY26.
In June, the central bank announced a concessional swap facility that was initially available until September 30, 2026. Under the arrangement, the RBI absorbed the foreign exchange hedging costs for fresh FCNR(B) deposits with three- to five-year maturities, costs that are generally borne by banks.
The response was significantly stronger than expected. The RBI had reported in early August that $40.8 billion had entered the country since June. By August 31, FCNR(B)-linked capital inflows had crossed $100 billion, The Financial Express reported, citing official sources.
This is not the first occasion on which the RBI has relied on funds from the Indian diaspora during a period of economic stress. A similar approach was used in 1991, when India was dealing with a severe balance-of-payments crisis.
The strategy was used again in 2013, when India raised about $34 billion from the diaspora to counter capital outflows triggered by the US Federal Reserve’s “taper tantrum”.
FCNR(B) DOLLAR INFLOWS STRENGTHEN FOREX RESERVES AND SUPPORT RUPEE
The sharp rise in FCNR(B) inflows has substantially increased India’s foreign exchange reserves, which reached a record $729.3 billion as of August 21, Reuters reported. By comparison, reserves had stood at $682 billion as of July 24, according to the Financial Times.
The inflows have rebuilt India’s external financial buffer at a time when rising crude prices and geopolitical uncertainty are putting pressure on the country’s balance of payments. Reuters reported that the additional reserves are expected to be more than sufficient to finance India’s current-account deficit during the financial year.
The increased forex cushion has also given the RBI greater capacity to defend the rupee.
According to Bloomberg, the rupee rose 0.4% on Tuesday to 94.7988 against the US dollar, marking its strongest level since July 1. The central bank supported the currency by selling dollars in both offshore and onshore markets, backed by its strengthened foreign exchange reserves.
