FCNR(B) deposits push forex reserves to all-time high of $729 billion in August

India's foreign exchange reserves have reached a record high of $729.33 billion as of August 21, thanks in large part to the FCNR(B) deposits managed through the RBI's concessional swap window. The FCNR (B) window has been in operation since June 8, providing NRIs with the opportunity to deposit foreign currency and earn interest rates up to 7.4%, while also benefiting from leverage that allows them to earn returns of up to 15% by borrowing at lower rates and depositing at higher FCNR(B) rates.

Since the window opened, $65.4 billion in FCNR (B) deposits have flowed in, bringing total forex reserves to their highest level on record. The foreign currency non-resident (bank) deposits have been instrumental in bolstering India's forex reserves, which are crucial in maintaining the rupee's strength and attracting foreign investment.

The RBI has been conscious of the need to defend the rupee, as a weakening currency makes it less attractive for foreign investors. Despite the rise in global energy prices due to geopolitical tensions, the FCNR(B) swap facility has drawn $72.85 billion in inflows between June 8 and August 21, exceeding expectations. The RBI has indicated that the swap window will close on August 31, one month earlier than the initially planned deadline of September 30.