In a significant development for India’s financial landscape, the Reserve Bank of India (RBI) has opted to conclude its special Foreign Currency Non-Resident (Bank) or FCNR(B) scheme earlier than initially scheduled, setting the new closing date for August 31st. This decision comes as a direct consequence of the overwhelming success of the scheme, which has garnered an impressive $52.3 billion in deposits by August 13th. The central bank’s initiative was primarily designed to inject much-needed foreign currency liquidity into the Indian banking sector, addressing concerns surrounding dollar availability within the economy.
The special USD-INR forex swap facility, encompassing FCNR(B) deposits, Overseas Foreign Currency Borrowings (OFCBs), and External Commercial Borrowings (ECBs), was originally introduced by the RBI on June 8, 2026. By mid-August, the combined inflows from these three components had reached a substantial $56.9 billion. The lion’s share of this inflow, specifically $52.3 billion, was attributed to the FCNR(B) deposits. The remaining contributions came from OFCBs, which brought in $2.8 billion, and ECBs, accounting for $1.7 billion. While banks are permitted to swap these newly acquired dollars with the RBI until September 11th, the facilities for ECBs and OFCBs will remain active until December 31st, as originally planned.
A crucial aspect of this arrangement lies in the RBI’s swap mechanism. Under this system, participating banks funnel dollars into the Indian financial system, and in return, the RBI provides them with an equivalent amount in rupees. Upon the maturity of the swap agreement, the transaction is reversed: the banks return the rupees to the RBI and receive their original dollar amounts back. From an economic perspective, this structure effectively insulates banks from much of the currency risk for the duration of the deposit, essentially functioning as a state-backed form of currency insurance.
Interestingly, many foreign banks involved in the scheme have reportedly extended financing significantly beyond the initial deposit amounts made by their affluent clientele. Industry experts suggest that the challenges associated with deploying these substantial proceeds into long-term, fixed-return assets might have played a role in the RBI’s decision to close the scheme prematurely.
Illustrating the scheme’s impact, CS Setty, the Chairman of the State Bank of India (SBI), revealed during an analysts’ meeting that SBI alone had mobilized nearly $6 billion through FCNR(B) deposits. In addition, the bank raised approximately $1 billion through OFCBs and $300 million via ECBs. This brings SBI’s total funding through this program to roughly $7.3 billion, with the majority channeled through its international branches. Setty had previously indicated SBI’s aspiration to raise around $10 billion under the scheme. The substantial funds generated are earmarked for retiring bulk deposits, potentially amounting to as much as Rs 1 lakh crore, thereby optimizing the bank’s liability structure. This strategic move highlights the far-reaching implications of the RBI’s initiative on Indian banking operations.
