India’s Reserve Bank of India has prematurely concluded its targeted foreign currency deposit scheme for non-resident Indians, citing sufficient inflows and surprising market expectations, potentially impacting confidence and rupee stability.
India’s central bank has ended its special deposit push for non-resident Indians earlier than promised, after the Reserve Bank of India said on 14 August that new Foreign Currency Non-Resident (Bank) deposits would be accepted only until 31 August, rather than 30 September. The move caught bankers and traders off guard because Governor Sanjay Malhotra had said on 5 August that there were no plans to close the scheme ahead of schedule.
The facility, launched in early June, was designed to attract longer-term foreign currency deposits and ease pressure on the rupee. According to reports from Business Standard and other Indian financial publications, the RBI also waived hedging costs for participating banks and temporarily removed interest rate caps on eligible FCNR(B) and Non-Resident External deposits, giving lenders more room to compete for overseas funds.
The scheme appears to have achieved its immediate aim far faster than expected. By 13 August, the programme had drawn in about $52.3 billion through FCNR deposits alone, with total inflows including related swap channels reaching roughly $56.85 billion, close to the lower end of the RBI’s original target range. That scale of demand appears to have persuaded the central bank that it had already secured enough funding, even with a month left before the original deadline.
The early shutdown leaves one important distinction intact: swap windows for external commercial borrowings and overseas foreign currency borrowings remain open until year-end. Still, the episode has raised questions about the RBI’s communication, with market participants now weighing the value of the inflows against the damage from a reversal that came only days after the governor publicly signalled that the scheme would stay open. According to the reports, the rupee has already benefited from the fresh inflows, but confidence in the central bank’s guidance may prove harder to rebuild.
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