In response to RBI’s sudden end to the FCNR(B) swap scheme, Indian lenders are rushing to attract non-resident Indian dollar deposits, raising rates and competition amid expectations of another $10 billion in inflows before the close of the window.
Indian banks are moving swiftly to lock in dollar deposits after the Reserve Bank of India cut short a special swap window for FCNR(B) inflows, a step that has intensified competition for non-resident Indian funds and pushed lenders to raise rates further.
The central bank had launched the concessional dollar-rupee swap facility on June 8 to encourage stable foreign currency inflows. It had originally been due to run until the end of September, but the RBI last week said the FCNR(B) portion would close at the end of August after what it called an encouraging response and the resulting foreign exchange inflows.
Banks have already raised more than $52 billion under the scheme by August 13, according to figures cited by Business Standard and RBI data reported by other outlets. Indian Express had earlier said the mobilisation stood at $17.4 billion by July 17, while RBI figures published later put total inflows at $40.82 billion by July 31, including FCNR(B), overseas foreign currency borrowings and external commercial borrowings.
The truncated timeline has prompted lenders to accelerate their sales push. Bankers told Business Standard that many had planned to spread mobilisation over six weeks, but are now pressing ahead more quickly by contacting NRI customers and completing funding arrangements already in place. A senior banker said the market now expects another $10 billion or more before the window shuts, while economists believe FCNR(B) inflows alone could reach $60 billion to $70 billion by month-end.
The scheme has also sharply changed deposit pricing. After the swap window was introduced, banks lifted FCNR(B) rates from around 2.5 per cent to 3 per cent to as high as 6 per cent to 7 per cent, with some offering 7.5 per cent, as the removal of hedging costs made the deposits more attractive. HDFC Bank, ICICI Bank and Axis Bank were among the lenders that raised rates in August, and most banks are now focusing on US dollar deposits.
Some bankers said the RBI’s move may reflect concern that inflows were becoming too large to manage smoothly, especially because the liquidity created by the swaps will have to be absorbed over time. Gaura Sen Gupta, chief economist at IDFC First Bank, told Business Standard that the inflows need to be repaid in three to five years and that the rupee liquidity injected through the window could have built up excess cash in the system. She estimated FCNR(B) inflows could reach $70 billion by the end of August, with total mobilisation across the swap windows potentially around $90 billion when overseas foreign currency borrowings and external commercial borrowings are included.
The decision also appears to have surprised some bankers. RBI Governor Sanjay Malhotra had said on August 5 that there was no plan to end the scheme early, yet the FCNR(B) window is now available only for deposits mobilised by August 31, with swaps allowed until September 11. The facilities for OFCBs and ECBs remain open until December 31, 2026.
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