The Reserve Bank of India has prematurely closed its concessional swap scheme after a surge in dollars drawn in by banks, highlighting shifts in foreign currency inflows and a muted impact on the rupee compared to 2013.
The Reserve Bank of India has shut its concessional swap window for Foreign Currency Non-Resident (Bank) deposits a month earlier than planned, after banks drew in $127.2 billion through the facility, according to Business Standard. The central bank moved to end the scheme on August 31 rather than September 30, reflecting how quickly dollar inflows gathered pace and how far they had moved beyond the 2013 experience that inspired the programme.
That earlier episode is an important benchmark. When then RBI governor Raghuram Rajan rolled out a similar swap arrangement in 2013, banks raised about $26 billion and the rupee strengthened by 2.84 per cent against the dollar over a little more than two months. This time, Business Standard said the rupee rose only 0.18 per cent over roughly the same period, even as the flow of money into the scheme was far larger. The contrast suggests the currency market absorbed the inflows with much less visible effect on the exchange rate than it did in 2013.
The composition of non-resident Indian deposits has also shifted over time. FCNR(B) deposits accounted for 40 per cent of NRI deposits in 2013-14, but that share had fallen to 12 per cent by FY22 before recovering to 21 per cent by June of FY27, still only a little more than half the level seen in 2013-14, Business Standard reported. Livemint said the RBI had earlier indicated there was no plan to end the window early, which makes the policy change a sign of how unexpectedly strong the response became.
Even after the FCNR(B) window has closed, some foreign currency channels remain open. Business Standard reported that facilities for external commercial borrowings and overseas foreign currency borrowings will continue until December 31, 2026. It said banks had raised $5.3 billion through overseas foreign currency borrowings and $3.9 billion through external commercial borrowings, taking total foreign exchange inflows under the RBI’s facility to $136.4 billion. Reporting by Capital Market and The Economic Times also said the FCNR(B) route accounted for the bulk of the scheme’s inflows, with authorised dealer banks recording $56.85 billion across the three channels by August 13.
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