State Bank of India expects FCNR(B) deposits to reach $65-70 billion by September 2026, supported by RBI's hedging cost facility. Despite these large capital inflows, the rupee continues to face depreciation pressure, raising questions about the effectiveness of current foreign exchange intervention strategies.
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State Bank of India's Economic Research Department has raised its forecast for FCNR(B) deposit inflows, projecting that the total could hit $65-70 billion by the end of September 2026. This is a sharp increase from the bank’s earlier expectation of $40-45 billion. The surge is driven by a Reserve Bank of India facility that covers the full cost of hedging for banks, making these foreign currency deposits more attractive.
Impact on Capital Flows and Currency
Beyond FCNR(B) deposits, the bank now estimates total capital inflows, including external commercial borrowings and overseas foreign currency borrowings, to reach $80-85 billion. This is a significant upward revision from the previous estimate of $55-65 billion. For the Indian economy, such inflows are usually a positive sign, as they increase the availability of foreign capital. However, there is a visible disconnect between these strong inflows and the performance of the rupee, which has continued to depreciate.
Soumya Kanti Ghosh, Group Chief Economic Advisor at SBI, noted that public sector banks are at the forefront of this mobilization effort. These institutions are using their existing client networks to attract these deposits. Furthermore, the bank expects that a large portion of FCNR deposits maturing in August and September 2026 will likely be renewed under the current favorable scheme, which would sustain these high inflow levels through the end of the quarter.
Analyzing RBI Intervention and Rupee Volatility
Despite having foreign exchange reserves that recently touched $676 billion, the rupee has struggled to maintain its value. SBI’s research suggests that the RBI’s current intervention in the forex market is sporadic. Using a specific statistical model, researchers found that the central bank’s average daily intervention is approximately $14 million. This is notably lower than the average daily intervention seen during 1997-98, when the reserves were much smaller, yet the interventions were considered more effective in stabilizing the currency.
For investors, this situation highlights a growing risk. The depreciation of the rupee during a period of healthy capital inflows may create a cycle of further weakness as the FCNR(B) window approaches its closing date in September 2026. Market watchers will now track how the RBI adjusts its intervention strategy to balance currency stability with the need to keep the economy competitive amid global geopolitical risks and trade uncertainties.