The Reserve Bank of India’s special FCNR-B deposit scheme has collected over $17.41 billion as of July 17. The initiative aims to stabilize the rupee by attracting foreign currency inflows from Non-Resident Indians before the September 30 deadline.
Detailed Coverage
The Reserve Bank of India (RBI) is seeing strong interest in its special Foreign Currency Non-Resident (FCNR-B) deposit scheme. Latest data shows the program has already mobilized more than $17.41 billion. This momentum has led to expectations that total collections could exceed the $26 billion raised during a similar initiative in 2013, which was launched to support the currency during a period of market volatility.
FCNR (B) accounts are fixed deposits held by Non-Resident Indians (NRIs) in foreign currencies. These deposits are attractive because they are tax-free in India and fully repatriable, meaning the funds can be moved back to the investor’s country of residence without restrictions. A key feature of the current scheme is the RBI’s support, which allows banks to swap these foreign currency deposits with the central bank at a concessional rate. This helps banks cover the costs of hedging against currency swings, allowing them to offer higher interest rates of 6% to 6.5% on dollar deposits to attract global capital.
Supporting the Rupee
The primary goal of this scheme is to bolster India’s balance of payments and provide support to the rupee. The Indian currency has faced pressure, recording a decline of over 3% in the current financial year and 11% in FY26. Current estimates from economists suggest the rupee may trade in the 94 to 96 range against the US dollar in the near term. By bringing in more foreign currency through these deposits, the central bank aims to ease the pressure on the rupee.
Challenges in Execution and Market Outlook
While the initial response is positive, banking sector experts point to operational challenges. Some banks are offering leverage of up to nine times on these deposits, while certain overseas partners have extended this to 19 times. However, the execution of these leveraged transactions is difficult due to higher borrowing costs outside India and tighter credit limits. Consequently, banks are currently prioritizing clients who can provide large deposit amounts. Smaller investors may find fewer options, as the current funding environment has squeezed the margins banks can earn on these deals.
Looking ahead, the next phase of the scheme will be critical. Most inflows are expected to come from regions like the Gulf and Singapore. There is some caution regarding potential participation from the US and UK, where investors may be more sensitive to tax reporting requirements. Market participants will monitor the inflow pace in August and September as the September 30 cutoff approaches. The final success of the drive will depend on how effectively banks manage their outreach to NRIs and navigate the current costs of overseas funding.