The Reserve Bank of India has prematurely closed its concessional swap window for foreign currency non-resident deposits after banks amassed over $52.3 billion, boosting reserves and prompting a policy shift.
The Reserve Bank of India has moved to shut its concessional swap window for foreign currency non-resident bank deposits earlier than planned, after banks gathered dollars at a faster pace than expected.
According to Business Standard, lenders had raised $52.3bn under the FCNR(B) scheme by August 13, prompting the central bank to stop accepting new deposits under the facility after August 31, a month before the original deadline. Banks will still be able to use the RBI swap arrangement until September 11. The separate window for external commercial borrowings and overseas foreign currency borrowings will remain open until December 31, 2026.
The reversal comes only days after RBI governor Sanjay Malhotra said there was no proposal to withdraw the scheme early. Even so, the central bank appears to have concluded that it has already secured enough foreign currency to support its balance-sheet and foreign-exchange needs. RBI data show total inflows under the broader facility at $56.85bn by August 13, with FCNR(B) deposits making up the vast bulk, followed by overseas borrowings and external commercial loans.
The pace of accumulation has also coincided with a sharp rise in reserves. Reuters has not independently verified the data, but Business Standard reported that foreign-exchange reserves climbed $14.14bn in the week to August 7 to $707bn, the biggest weekly increase since late January. That followed a period in which reserves had fluctuated as the RBI bought and sold dollars to smooth volatility in the rupee. The latest figures suggest the central bank has resumed purchases amid sustained inflows.
Economists said the early closure reflects both stronger-than-expected demand and a changed policy calculation. Madhavi Arora of Emkay Global Financial Services told Business Standard that the RBI appears to have raised funds far faster than anticipated, while Madan Sabnavis of Bank of Baroda said the volume of inflows may already be enough to meet the central bank’s objectives. The swap window, launched on June 8 and backed by the RBI absorbing the hedging cost, was designed to encourage banks to offer attractive rates to non-resident depositors and to draw in foreign currency when external pressures on India’s currency were elevated.
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