India’s Forex Reserves Hit Record $729 Billion as RBI Wraps Up Successful NRI Deposit Scheme
Mumbai: In a decisive move to bolster the nation’s financial defenses, the Reserve Bank of India (RBI) has concluded its aggressive drive to attract foreign capital from the Indian diaspora. The Foreign Currency Non-Resident (Bank) or FCNR(B) scheme, designed to invite overseas deposits, has surged past the $100 billion mark, prompting the government to terminate the program a month ahead of schedule to mitigate risks associated with excessive liquidity.
The massive influx of capital has successfully fortified India’s financial position, pushing the country’s foreign exchange reserves to an all-time high of $729.3 billion. This record-breaking surge provides the RBI with significant “ammunition” to defend the Indian Rupee (INR) against ongoing volatility caused by geopolitical friction in the Middle East and fluctuating crude oil prices.
A Strategic Success
The FCNR(B) initiative was launched in June with an initial internal target of $80 billion, a figure RBI Governor Sanjay Malhotra viewed as ambitious. However, the response from Non-Resident Indians (NRIs) surpassed all expectations, with inflows crossing $100 billion by August 31.
Given the velocity of the inflows, the central bank decided to shutter the window early. While the main scheme concluded this Monday, the RBI has granted banks a brief grace period until September 11 to process deposits already in the pipeline.
Turning the Tide on Volatility
Earlier this year, India’s economic landscape looked starkly different. Following the outbreak of conflict in the Middle East in February, rising energy costs and capital outflows saw India shed approximately $46 billion in reserves by late July, dragging total reserves down to $682 billion. During that period, the Rupee emerged as one of Asia’s worst-performing currencies, weakening by 6% against the US Dollar.
The rapid replenishment of the reserves—up from $682 billion in late July to $729.3 billion by late August—has provided a vital buffer. This stability has already begun to reflect in market performance, with the Rupee gaining 0.4% this week to reach 94.79 per dollar, its strongest valuation since early July.
How the FCNR(B) Scheme Works
The FCNR(B) scheme allows NRIs to park their overseas earnings in Indian banks in foreign currencies like the US Dollar rather than converting them into Rupees. Because both the principal and interest are paid out in foreign currency, depositors are shielded from the risks of Rupee depreciation.
To revive interest in the scheme—which had seen deposits drop to just $946 million in FY26 compared to over $7 billion the previous year—the RBI introduced a concessional swap facility. By absorbing the forex hedging costs typically borne by commercial banks for three-to-five-year deposits, the RBI successfully incentivized a massive wave of capital migration back to India.
Historically, India has relied on its diaspora during times of crisis, most notably during the 1991 balance-of-payments crisis and the 2013 “taper tantrum.” By leveraging these FCNR(B) deposits, the RBI has effectively secured the nation’s external balance sheet, ensuring that even if global oil prices remain elevated, the country has the financial stability required to manage its current-account deficit comfortably.
