Nearly $750bn shield: How India built record forex reserves amid US-Iran war

During the US-Iran conflict in May 2026, Prime Minister Narendra Modi urged citizens to conserve gold, travel, and fuel to protect India's foreign exchange reserves, which were facing pressure from the rupee's depreciation. By the end of February, India had already reached a record high, but the Reserve Bank of India took measures to curb the slide of the rupee and mitigate currency drain due to rising fuel and gold import costs.

As of now, India's foreign exchange reserves are an impressive $740 billion, marking the highest-ever level for the country.

The Reserve Bank of India (RBI) achieved this milestone through its Foreign Currency Non-Resident (FCNR(B)) window bonanza. The RBI incentivized Indian banks to attract foreign-currency deposits from overseas Indians by absorbing currency-hedging costs on FCNR deposits. This move enabled banks to offer more attractive returns to depositors and reduced the exchange-rate risk.

The FCNR(B) deposits allowed banks to leverage the foreign-currency deposits, with some lenders offering loans several times the original deposit. This resulted in fresh dollar inflows, far exceeding the RBI's initial estimate of around $80 billion. Nearly half the mobilization came in the final 10 days before the scheme closed on August 31, with FCNR(B) deposits accounting for $127.23 billion, overseas foreign-currency bonds contributing $5.3 billion, and external commercial borrowings totaling $3.9 billion.

This strategy successfully revived a similar window used during the 2013 taper tantrum, which attracted about $26 billion and led to a sharp rupee rally. The RBI ended the FCNR window a month earlier than planned due to the impressive results. Experts attribute a significant portion of the increase in forex reserves to the RBI's swap window, which provided an essential buffer against external shocks, while RBI interventions also played a role in stabilizing the rupee's value.