Rupee gains 47 paise as record FCNR inflows boost forex liquidity

Mumbai: Within a span of less than three months, Indian banks have collected an unprecedented $127.22 billion in FCNR (B) deposits, according to the Reserve Bank of India (RBI). The total inflows from special schemes aimed at attracting dollars, including FCNR (B) deposits, overseas foreign currency borrowings (OFCBs), and external commercial borrowings (ECBs), amounted to $136.37 billion as of August 31, as per provisional data released on Tuesday.

In the final ten days of the special deposit window, banks mobilized an additional $61.8 billion in FCNR (B), nearly double the $65.4 billion collected up to August 21, according to RBI data.

The FCNR (B) deposits comprised over 93% of the total dollar inflows, with banks contributing the most to the kitty during this period, marking a strong close to the special window. The surge in dollar demand accelerated following the Reserve Bank of India's decision to advance the deadline for banks to accept incentives-laden FCNR (B) deposits by a month, setting the new cutoff date as August 31 due to the strong inflows witnessed through the scheme.

However, the swap scheme for ECBs and OFCBs will persist until December 31, 2026, as initially planned.

Launched on June 8 to enhance dollar inflows and bolster foreign exchange reserves, the facility enables banks to swap eligible overseas borrowings with the central bank at concessional rates, significantly reducing their cost of funds. Under the updated guidelines, banks can utilize a zero-cost hedging facility for FCNR (B) inflows until September 11.

"It is crucial to acknowledge that this represents a future dollar-denominated debt liability, potentially incurring an indirect fiscal cost amounting to Rs 1 trillion or more cumulatively. The funds raised must be judiciously and productively deployed to mitigate these first-order costs," stated Madhavi Arora, chief economist of Emkay Global Financial Services.

Separately, government sources revealed that the international banking units (IBUs) of public sector banks collectively disbursed $52.82 billion in loans to depositors of the FCNR (B) scheme under the special window. Between April and August 2026, public sector banks raised $11.62 billion through ECBs and $11.12 billion through bonds, as per government sources.

Record Haul: Inflows through the FCNR (B) scheme have surpassed the $26 billion mobilized under a similar scheme in 2013 within less than three months since its inception on June 8. The scheme has contributed to swelling India's foreign exchange reserves to a record high. As of August 21, the latest data showed, India's foreign exchange reserves had reached $729.3 billion, marking an increase of nearly $50 billion since June.

The forex stash has risen for eight consecutive weeks, with reserves increasing by $12.4 billion during the week ended August 21, as foreign currency assets grew by $9.4 billion to $591 billion, while gold reserves expanded by $2.8 billion to $114 billion.