The Reserve Bank of India’s special FCNR(B) scheme has mobilised $133 billion from non-resident Indians, with the central bank defending the programme’s broader economic benefits despite concerns over costs and balance sheet risks.
Reserve Bank of India Governor Sanjay Malhotra has defended the central bank’s special foreign currency deposit programme, saying the economic gains outweighed the hedging expense it absorbed. Speaking after the latest monetary policy decision, Malhotra said the FCNR(B) scheme was designed to support foreign exchange reserves and ease pressure on the balance of payments, and that its broader benefits mattered more than the cost to the central bank.
The facility, launched on June 8, 2026, allowed banks to raise foreign-currency deposits from non-resident Indians while the RBI took on the currency hedging burden. According to the RBI’s own notification, lenders could sell dollars to the central bank and buy them back later at a fixed swap premium. The arrangement, which closed for FCNR(B) deposits on August 31, was part of a wider window that remains open for overseas foreign currency borrowings and external commercial borrowings until December 31, 2026. By the end of August, banks had mobilised $133 billion through the special FCNR(B) scheme, according to figures cited by the RBI and reported by the Economic Times.
The cost of the programme has drawn scrutiny because the central bank has been bearing the currency risk on the principal amount, while banks still face some hedging expense on the interest payable. Business Standard reported that this could raise deposit costs by 15 to 20 basis points for lenders. At the same time, SBI Research has argued that the arrangement may prove lucrative over time, estimating a notional profit of about Rs 5.5 trillion over five years once the funding is recycled into credit and income generation.
Malhotra also pushed back against suggestions that the scheme could threaten the central bank’s balance sheet, saying India’s macroeconomic position remains strong and that repayment risks are manageable. He said pressure on the current account and weaker external inflows were temporary and expressed confidence that the external sector would improve. Separately, he said excess banking system liquidity was likely to be absorbed during the current financial year through a combination of currency leakage, market operations and reserve requirements, with the RBI expecting the large surplus to fade rather than persist.
Disclaimer: This article is intended to inform and educate, not to recommend or endorse any financial product, investment or strategy. Please consider your own financial circumstances and seek professional advice where appropriate before making financial decisions.
