FCNR(B) Scheme Sees Huge Inflows
The RBI introduced a special FCNR(B) swap facility in June to encourage NRIs to bring more foreign currency into Indian banks.
By August 31, inflows through the route had crossed $100 billion. RBI Governor Sanjay Malhotra had initially estimated that the initiative could attract around $80 billion.
The actual response was significantly stronger than anticipated.
RBI Closes Window Early
The special FCNR(B) swap facility was originally scheduled to remain available until September 30.
However, the strong inflow of foreign currency prompted the RBI to close the window in August. Concerns about the risks associated with a possible reversal of excessive inflows also appear to have influenced the decision.
Banks will still be allowed to use the swap facility until September 11 for deposits that had already been contracted.
Forex Reserves Hit Record
The surge in FCNR(B) inflows has significantly strengthened India’s foreign exchange position.
India’s forex reserves reached a record $729.3 billion as of August 21. This compares with around $682 billion on July 24, marking a substantial improvement within a matter of weeks.
More Firepower to Support the Rupee
Higher reserves have given the RBI greater flexibility to intervene in currency markets.
The rupee gained 0.4% on Tuesday to reach 94.7988 against the US dollar, its strongest level since July 1. The central bank can use its dollar reserves to intervene in both onshore and offshore markets when necessary.
What Is FCNR(B)?
Foreign Currency Non-Resident (Bank), or FCNR(B), accounts allow NRIs to keep deposits in foreign currencies such as US dollars rather than converting the money into Indian rupees.
These are fixed-term deposits in which both the principal and interest are paid in the foreign currency. This protects depositors from exchange-rate fluctuations affecting the value of their funds.
Why Did the RBI Promote It?
FCNR(B) inflows had fallen sharply in recent years.
Inflows dropped from more than $7 billion in 2024-25 to just $946 million in 2025-26. The RBI therefore introduced a concessional swap facility for fresh FCNR(B) deposits with maturities of three to five years.
Under the arrangement, the RBI absorbed foreign-exchange hedging costs that would normally be borne by banks, making the deposits more attractive.
Geopolitical Pressure Added to the Challenge
The scheme was introduced at a difficult time for India’s external sector.
The ongoing conflict in the Middle East, elevated crude oil prices and pressure on the rupee had increased demand for dollars. Higher oil import costs can put additional pressure on India’s balance of payments and foreign exchange reserves.
India Has Used Diaspora Funds Before
This is not the first time India has turned to its overseas population for foreign currency during periods of economic stress.
The country used similar measures during the 1991 balance-of-payments crisis. In 2013, India also raised around $34 billion from its diaspora when global capital flows were affected by the US Federal Reserve’s tapering plans.
Stronger External Buffer for India
The rebuilding of forex reserves provides India with a stronger external financial buffer.
The reserves can help the country manage pressure from high oil prices and geopolitical uncertainty while also giving the RBI more flexibility to support the rupee and meet external financing requirements.
Conclusion
The RBI’s latest push to attract NRI foreign currency deposits has delivered a much larger response than expected. FCNR(B) inflows crossed $100 billion in just three months, helping India’s forex reserves rise to a record $729.3 billion.
While the stronger reserves provide valuable protection against external shocks and give the RBI greater room to support the rupee, managing the risks associated with large foreign inflows and potential reversals will remain important.
