The Reserve Bank of India’s (RBI) special foreign exchange swap facility has attracted $72.85 billion in inflows till August 21, with just nine days remaining before the scheme closes, according to RBI data released on Saturday.
The strong mobilisation comes as the central bank looks to bolster foreign exchange liquidity and support the rupee amid pressure from global developments and higher crude oil prices.
FCNR deposits account for bulk of inflows
Data reported by authorised dealer banks showed that FCNR(B) deposits accounted for $65.397 billion of the total mobilisation. Overseas Foreign Currency Borrowings (OFCBs) contributed $4.86 billion, while External Commercial Borrowings (ECBs) accounted for $2.591 billion, The Indian Express reported.
The RBI had introduced the special USD-rupee concessional swap facility on June 8 to encourage fresh foreign currency inflows through these channels.
The facility was originally scheduled to remain open until September 30. However, on August 14, the RBI announced that it would close the window early on August 31 following what it described as an “encouraging response”. Swaps against FCNR(B) deposits mobilised through the facility can still be undertaken with the RBI until September 11.
Analysts see less need for extraordinary support
Radhika Rao, ED and Senior Economist at DBS Bank, said the response suggested the need for additional emergency measures had eased.
“The scale of hedging cost (borne by the central bank) was unlikely to have been a binding factor, with funds raised to-date deemed to be sufficient to prop the BOP back to a position of strength,” Rao told The Indian Express.
The RBI’s facility allows banks to access rupee liquidity against eligible foreign currency inflows. Major banks are offering FCNR rates of around 6%-6.5%, while some smaller banks are offering around 7%-7.50%.
Questions over cost and fresh inflows
The scheme has also drawn attention to the cost of hedging. An SBI Research report estimated that the potential cost to the RBI could be around 15% of the amount raised. If mobilisation reaches $70 billion, that could translate into a cost of about $10.5 billion.
There are also questions over how much of the reported mobilisation represents genuinely new foreign currency entering the financial system.
FCNR(B) deposits allow non-resident Indians, Overseas Citizens of India and Persons of Indian Origin to hold fixed-term deposits in designated foreign currencies.
Meanwhile, India's forex reserves increased by $9.90 billion to $716.90 billion in the week ended August 14.