FCNR(B) Inflows Surpass $100 Billion, Exceed RBI’s $80 Billion Estimate: Report

FCNR(B) deposits crossed $100 billion by August 31, surpassing the RBI’s $80-billion estimate as strong overseas inflows boost India’s external funding position.

FCNR(B) Inflows Surpass $100 Billion

Capital raised through the Foreign Currency Non-Resident (Bank), or FCNR(B), deposit scheme crossed the $100-billion mark by the August 31 deadline, according to a Financial Times report.

The inflows have significantly exceeded the Reserve Bank of India’s earlier estimate of around $80 billion across FCNR(B) deposits, External Commercial Borrowings (ECBs) and Overseas Foreign Currency Borrowings (OFCBs).

The strong response from overseas sources highlights continued interest in India’s foreign-currency deposit and borrowing facilities.

RBI’s Special Swap Facility Attracts Strong Response

The RBI introduced a special swap facility to encourage foreign-currency inflows and strengthen India’s external financing position.

The facility also attracted funds through ECBs and OFCBs. The FCNR(B) window officially closed on August 31, although banks have been allowed to use the RBI’s swap facility for deposits that were already contracted until September 11.

The swap arrangements have maturities ranging between three and five years, with five-year arrangements accounting for a large share of the funds raised.

FCNR(B) Window Closes Ahead of Schedule

The strong inflows prompted the RBI to close the FCNR(B) facility earlier than initially planned.

The window was originally scheduled to remain open until September 30, but the central bank decided to bring forward the closure in response to the unexpectedly high demand.

The scheme offered attractive tax-free returns on dollar-denominated deposits made by non-resident Indians, making it an appealing route for bringing foreign currency into India.

ECB and OFCB Facilities Remain Open

Although the FCNR(B) window has closed, the other borrowing channels remain available. The ECB and OFCB windows will continue until December 31, 2026, providing additional avenues for foreign-currency funding.

The RBI operationalised the special swap facility on June 8, while FCNR(B) inflows began on June 23.

Data available through August 21 showed that the three channels had collectively attracted approximately $72.85 billion.

Route-Wise Inflows

According to the available RBI data:

• FCNR(B) deposits: $65.4 billion

• OFCBs: $4.86 billion

• ECBs: $2.59 billion

• Total: $72.85 billion

The subsequent inflows through the August 31 deadline pushed the overall mobilisation substantially higher.

RBI Describes Early Closure as a Calibrated Decision

RBI Governor Sanjay Malhotra described the early closure of the FCNR(B) window as a carefully considered response to evolving market conditions.

He indicated that the decision was based on data and reflected the RBI’s assessment of the costs and benefits associated with attracting additional foreign-currency inflows.

The central bank has to manage the liquidity created when foreign currency enters the domestic financial system. As inflows increase, the cost of sterilising the resulting liquidity can also rise.

Why the RBI May Have Chosen to Close the Window Early

The large response to the FCNR(B) scheme created both benefits and challenges for the central bank.

Higher foreign-currency inflows can strengthen India’s external position and support the balance of payments. However, managing excessive liquidity and the associated sterilisation costs can become increasingly expensive.

The RBI Governor has indicated that the marginal benefit from each additional dollar swapped declines while the cost of managing the resulting liquidity can increase.

This balance between attracting foreign capital and managing its domestic monetary impact appears to have influenced the decision to end the FCNR(B) window ahead of schedule.

Strong Inflows Could Support India’s Balance of Payments

The substantial FCNR(B) inflows could provide support to India’s balance of payments during the current financial year. The development comes after India’s foreign exchange reserves declined by approximately $8 billion during the April-June quarter.

Estimates cited in the report suggest that India’s capital account surplus could exceed $65 billion during the current financial year.

If realised, this would represent a significant improvement compared with the capital account deficits recorded during the previous two financial years.

What the $100 Billion Milestone Means

Crossing the $100-billion mark demonstrates stronger-than-expected participation in India’s foreign-currency funding programmes.

For the RBI, the inflows provide additional foreign-currency resources and could strengthen the country’s external financial position. At the same time, the central bank must carefully manage the liquidity and monetary implications of these inflows.

The continued availability of ECB and OFCB routes means foreign-currency mobilisation can continue even after the FCNR(B) window has closed.

Conclusion

FCNR(B) inflows crossing $100 billion have significantly exceeded the RBI’s earlier $80-billion estimate, highlighting strong overseas demand for India’s foreign-currency funding avenues. The early closure of the FCNR(B) window reflects the central bank’s effort to balance external funding benefits with liquidity-management costs.