The Reserve Bank of India on Monday revised upwards the amount mobilised under its special Foreign Currency Non-Resident (Bank), or FCNR(B), deposit window to nearly $133 billion, underscoring the scale of foreign-currency inflows attracted by the scheme before it was closed a month ahead of schedule.
The latest data reported by authorised dealer banks showed FCNR(B) deposits of $132.980 billion as of August 31, substantially higher than the provisional mobilisation of $127.226 billion reported on September 2.
Together with inflows through Overseas Foreign Currency Borrowings (OFCBs) and External Commercial Borrowings (ECBs), the special facility had attracted $143.596 billion, according to data reported to the RBI up to September 18.
FCNR(B) drives inflows
FCNR(B) deposits accounted for the overwhelming share of the mobilisation, at $132.980 billion. OFCBs contributed another $5.320 billion, while ECBs brought in $5.296 billion.
The three channels together have therefore mobilised $143.596 billion under the special facility launched by the central bank on June 8.
The revised FCNR(B) figure is about $5.75 billion higher than the provisional number released earlier this month.
The RBI had originally kept the FCNR(B) window open until September 30. However, a strong response prompted the central bank to advance the closing date to August 31, saying the objective of the measure had been achieved ahead of schedule.
The windows for ECBs and OFCBs will remain available until December 31, 2026, leaving scope for the overall mobilisation under the facility to rise further.
How the facility works
FCNR(B) accounts allow non-resident Indians to maintain fixed-term deposits with Indian banks in designated foreign currencies.
Both the principal and interest are repaid in the same foreign currency, insulating depositors from direct exposure to fluctuations in the rupee.
The special swap arrangement was designed to encourage banks to mobilise such foreign-currency deposits by allowing them to swap the funds with the RBI under specified terms.
The mechanism consequently brings foreign currency into the banking system while providing participating banks with rupee liquidity.
The June 8 facility also covered eligible overseas foreign-currency borrowings by banks and external commercial borrowings, broadening the channels through which foreign-currency funds could be brought into the country.
Impact on rupee liquidity
The exceptionally large mobilisation has also had implications for domestic liquidity management.
When banks swap foreign currency raised through FCNR(B) deposits with the RBI, they receive rupees in return. The scale of the mobilisation has therefore contributed to the substantial liquidity surplus that has accumulated in the banking system.
The RBI has separately begun absorbing some of this surplus through open market operation sales of government securities.
On Monday, it accepted bids worth Rs 25,000 crore in the second tranche of its OMO sale programme. Banking-system liquidity surplus was estimated at around Rs 6.05 lakh crore as of September 20.
The central bank has announced OMO sales totalling Rs 1 lakh crore in three tranches as it seeks to withdraw excess funds without abruptly tightening financial conditions.
More inflows possible
While the FCNR(B) component of the special facility is now closed, mobilisation through ECBs and OFCBs can continue for more than three months.
The final total under the programme could therefore exceed the $143.596 billion reported so far.
The size of the FCNR(B) mobilisation also demonstrates the capacity of Indian banks to tap the overseas Indian community for foreign-currency deposits when attractive swap arrangements are available.
With nearly $133 billion mobilised through FCNR(B) deposits alone in less than three months, the RBI now faces the parallel task of managing the large rupee liquidity created by those inflows while maintaining orderly conditions in the currency and money markets.