India's initiative to attract foreign currency deposits is projected to draw in around $30 billion. This comes as the Reserve Bank of India (RBI) takes measures to bolster its foreign exchange reserves and stabilize the rupee amidst economic fluctuations.
Launched on June 8, 2026, the scheme specifically targets Non-Resident Indians (NRIs) and Persons of Indian Origin (PIOs), allowing them to deposit foreign currency in Indian banks for three to five years. By mid-July, nearly $10 billion had already been deposited, indicating strong initial interest from the diaspora.
How the Scheme Operates
This program revolves around Foreign Currency Non-Resident (Bank) deposits, abbreviated as FCNR(B). The RBI offers banks a concessional USD-INR forex swap facility, which helps them hedge their risks and enables them to offer attractive interest rates of up to 7%. This is particularly crucial for banks as it lowers their exposure to currency risks while making investments more appealing to depositors. The scheme is set to continue until September 30, 2026.
Rationale Behind the Initiative
Historically, similar measures have proven effective. For instance, a 2013 scheme generated about $34 billion in FCNR inflows during a time when the rupee was facing significant pressure. Currently, net FCNR(B) inflows plummeted by 86% in the last fiscal year, dropping to merely $946 million, hence the need for competitive incentives has become evident.
Public sector banks are poised to gain the most from this substantial influx of foreign currency deposits, enhancing their funding capabilities and liquidity metrics. Every dollar injected into the FCNR(B) program will boost India's forex reserves, providing the RBI with additional use to intervene in the forex market should the rupee come under pressure.
However, there are ongoing concerns regarding the maturity of these deposits. When the three-to-five-year terms expire, India may face significant outflows unless depositors decide to roll over their investments. Such a scenario led to notable volatility during the 2013 scheme's maturity phase.
This article is for informational purposes only and should not be considered financial advice.
