India has attracted over $50bn from its overseas citizens in just two months, leading the Reserve Bank of India to shut a special foreign-currency deposit scheme ahead of schedule amid surging diaspora inflows and aggressive lender pricing.
India has pulled in more than $50bn from its overseas citizens in the space of two months, prompting the Reserve Bank of India to end a special foreign-currency deposit window earlier than planned. The central bank said banks had raised $52.3bn through foreign currency non-resident, or FCNR(B), deposits by August 13, and that total inflows reached $56.85bn when overseas foreign-currency loans and external commercial borrowings were included.
The RBI opened the facility in June to encourage banks to attract dollars from Indians living abroad by easing hedging costs. Business Standard reported at the time that the scheme was designed to support foreign-currency inflows and reduce pressure on the rupee, while also allowing banks greater flexibility on rates. The central bank had initially set a later closing date, but after what it called an encouraging response, it brought the deadline forward to August 31.
That response has been helped by aggressive pricing from lenders. Banks have offered as much as 7.75% on five-year deposits to court India’s estimated 35 million-strong diaspora. The move comes after earlier RBI data showed inflows into FCNR(B) deposits had been softer in April, even as broader non-resident deposit flows held up better.
For markets, the early shutdown could matter as much for bonds as for the currency. Analysts cited by Bloomberg said the short end of India’s bond market may come under pressure when trading resumes, because the scheme had channelled dollar conversions into rupee liquidity and helped drive gains in shorter-dated debt. Rajeev Pawar, head of treasury at Ujjivan Small Finance Bank, told Bloomberg that excess cash had been parked in bonds, particularly the short end, and warned that the liquidity backdrop looks less favourable now that the RBI is also draining surplus funds through reverse repos.
Still, the impact on the rupee may be limited. The RBI’s special window has already delivered substantial inflows, and currency traders remain focused on oil prices, which have been a key driver of rupee sentiment. The central bank has also been active in the foreign-exchange market in recent days to keep the dollar-rupee pair tightly ranged, underscoring its continuing effort to support the currency.
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