India’s FCNR(B) deposits have reached $26 billion in just 45 days, outpacing the 2013 record. These inflows are expected to help strengthen the balance of payments and support the rupee. Investors should monitor how these funds impact bank liquidity and foreign exchange reserves as the scheme progresses.
Detailed Coverage
Foreign Currency Non-Resident (Bank) deposits in India have seen a rapid rise, crossing the $26 billion mark in only 45 days. This performance surpasses the inflows seen during the 2013 special deposit scheme, which took nearly three months to reach a similar level. The Reserve Bank of India’s latest data, as of July 17, shows total inflows of $20.7 billion, with $17.4 billion coming directly from these FCNR(B) deposits.
Impact on Balance of Payments and Current Account
These inflows are expected to provide a significant boost to India’s external financial position. Projections from SBI Research suggest that total inflows, including Overseas Foreign Currency Borrowings and External Commercial Borrowings, could reach $80-85 billion by the end of the scheme. This move is significant as it could shift the balance of payments from a projected deficit of $65-70 billion to a surplus exceeding $50 billion for the current fiscal year. Additionally, the current account deficit is now expected to narrow to a range of 1.0 to 1.2 percent of GDP, which helps in managing external vulnerabilities.
Role of Public Sector Banks and Renewals
Public sector banks are expected to be the primary drivers of this deposit mobilization. A key factor behind the total expected inflow is the renewal of existing deposits. A large portion of FCNR(B) deposits are set to mature between August and September. Due to the higher interest rates offered under the current scheme, many investors are expected to renew their holdings. Estimates suggest these renewals alone could add $10 billion to the total inflow figure.
RBI Intervention and Rupee Stability
Despite the significant influx of foreign currency, concerns regarding the stability of the Indian rupee persist. While FCNR(B) inflows hit $17.4 billion by mid-July, the country's Foreign Currency Assets grew by only $7.6 billion in the same period since June 8. This indicates a gap between the total deposits received and the actual increase in reserves. Observations suggest that the Reserve Bank of India’s daily intervention in the foreign exchange market, which has averaged around $14 million, remains modest relative to India's total foreign exchange reserves of roughly $676 billion. Investors will be watching whether the pace of Foreign Currency Assets growth accelerates toward the expected $17-20 billion by the end of July and how the central bank manages market volatility.
Moving forward, the primary monitorable for the market will be the final total of these inflows and their impact on bank-level liquidity. Investors may also track future RBI updates on reserve growth to see if the central bank increases its market intervention to stabilize the currency against global pressures.