Indian banks are fast-tracking their overseas dollar deposit collections following the Reserve Bank of India’s abrupt closure of the FCNR(B) swap scheme, transforming a planned prolonged effort into a frantic two-week scramble for foreign currency inflows.
India’s banks are accelerating their drive for overseas dollar deposits after the Reserve Bank of India cut short a concessional swap window for FCNR(B) accounts, a move that has turned what was meant to be a slow build-up into a two-week scramble.
The central bank had launched the dollar-rupee swap facility in June to encourage stable foreign currency inflows from non-resident Indians. It originally ran until the end of September, but was trimmed to the end of August after what the RBI described as an encouraging response and strong forex inflows, according to Business Standard.
Banks have already raised more than $52 billion under the scheme by August 13, and some economists and bankers now expect mobilisation to finish in the $60 billion to $70 billion range by the end of this month. Business Standard and its cited bankers said lenders are now pushing customers to move faster than planned, with many institutions front-loading deposits they had intended to gather over six weeks.
The swap window has helped banks offer far higher returns on FCNR(B) deposits because it removes hedging costs. Rates that were around 2.5% to 3% before the facility was introduced have climbed to roughly 6% to more than 7%, with some lenders offering as much as 7.5%, Business Standard reported. Major private lenders including HDFC Bank, ICICI Bank and Axis Bank have all lifted pricing in August to draw in more money.
The policy comes as India faces a heavier import bill from energy prices and as foreign portfolio investors have continued to sell Indian equities this year. Reuters has previously noted that the RBI has been looking for ways to shore up external inflows, and the FCNR(B) window is part of that effort. Under the scheme, deposits can be mobilised only until August 31, while banks have until September 11 to use the swap facility, with the wider ECB and OFCB swap routes still open until the end of 2026.
Some bankers said the early closure is likely to strengthen the flow even further in the short term. One senior banker quoted by Business Standard said many NRIs who had expected more time now have to act quickly, while another said the market could still produce another $10 billion or so before the window shuts. IDFC First Bank economist Gaura Sen Gupta said the RBI’s move was prudent because the inflows must eventually be repaid and because the rupee liquidity created by the scheme could otherwise have become excessive.
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