India’s special foreign-currency deposit scheme is rapidly surpassing expected inflows, with potential to reach $85 billion, posing both opportunities and challenges for the economy and currency stability.
State Bank of India Research expects India’s special foreign-currency deposit drive to finish with $65 billion to $70 billion in FCNR(B) deposits alone, and as much as $80 billion to $85 billion once overseas foreign currency borrowings and external commercial borrowings are included. The estimate marks a sharp upgrade from earlier projections, after the scheme drew faster-than-expected interest from non-resident Indians and overseas borrowers.
The acceleration has been striking. SBI Research said the first $20 billion of overall inflows took 38 days, while the next $20 billion arrived in just 14 days. In the 13 days to August 13, inflows increased by about $16 billion, taking total mobilisation to $56.8 billion, including $52.3 billion in FCNR(B) deposits, $2.8 billion in OFCBs and $1.7 billion in ECBs.
That pace matters because the Reserve Bank of India has shortened the scheme by a month. According to the central bank’s revised timetable, deposits mobilised only until August 31 qualify for the swap facility, while banks must access the swap by September 11, instead of the earlier September 30 and October 16 deadlines. Livemint reported that the original facility was reopened in June to attract fresh foreign-currency inflows and support the rupee.
SBI Research said the RBI had already recouped about $31.2 billion in foreign-currency assets by August 7, equal to roughly 55% of mobilisation at that point. The bank said the truncated timetable looks prudent because the scheme appears capable of reaching its target within the revised window. Even so, the report said the rupee has not strengthened as much as many expected, with the currency recently steadier around ₹95 to ₹95.5 after briefly moving beyond ₹96.
The larger inflows are also expected to ripple through Indian markets. SBI Research said the deposit drive could inject about ₹8 lakh crore to ₹9 lakh crore into the banking system at the upper end of its forecast, easing liquidity and potentially reducing banks’ reliance on wholesale certificates of deposit. It said that could narrow short-dated money-market and bond spreads and, over time, encourage banks to hold longer-duration securities.
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