India's RBI FX forward book hits record $136.7 billion on surging overseas deposits

Mumbai witnessed a record high in the Reserve Bank of India's foreign exchange forward position in July, reaching $136.7 billion. This surge was primarily driven by a spike in overseas deposits following the central bank's efforts to encourage dollar inflows and stabilize the rupee. The July figure represented a significant increase of approximately $33 billion compared to the previous month, surpassing the previous peak of $106.6 billion observed in May.

A key instrument in attracting these overseas deposits was the foreign currency non-resident (FCNR) deposits scheme. This program enabled commercial banks to exchange dollar proceeds generated from non-resident Indians with the central bank at no cost. Such deposits constituted the majority of the overseas funds mobilized by banks, accounting for $65.4 billion out of the total $72.8 billion received through the various initiatives up to August 21.

By July 31, FCNR(B) deposits had contributed $36.7 billion to the $40.8 billion in foreign exchange inflows mobilized under these measures.

The increase in FCNR(B)-related flows was evident in the maturity profile of the central bank's foreign exchange forward book. The liability associated with FCNR(B) swaps maturing beyond one year rose to $91.5 billion in July, up from $64.2 billion in June. This growing exposure in the central bank's balance sheet reflects the bank's efforts to bolster India's forex reserves through these measures.