RBI Forex Swap Scheme Attracts $72.85 Billion Inflows, FCNR(B) Deposits Account For Lion’s Share
· Free Press Journal
Foreign exchange inflows through the Reserve Bank of India’s special USD-INR forex swap facility have reached $72.85 billion as of August 21, according to report by Business Standard citing data submitted by authorised dealer banks to the central bank.
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Foreign Currency Non-Resident (Bank), or FCNR(B), deposits account for the bulk of the inflows at $65.397 billion. External Commercial Borrowings (ECBs) have generated another $2.591 billion, while Overseas Foreign Currency Borrowings (OFCBs) have contributed $4.860 billion.
The RBI launched the swap window on June 8 to strengthen foreign exchange liquidity and encourage banks to attract overseas funds. Following strong participation, the central bank earlier this month decided to close the swap facility on August 31 instead of the original September-end timeline.
However, the facility for ECBs and OFCBs will continue to remain open until December 31, 2026.
RBI Governor Sanjay Malhotra Defends Early Closure Of FCNR(B) Swap Window, Calls Move A ‘Calibration’Relief for Liquidity, Temporary Margin Pressure
The scheme provides participating banks with benefits including a zero-cost principal hedge, certain regulatory exemptions and leverage-related facilities. These features have helped make FCNR(B) deposits more attractive to non-resident Indians.
Analysts, however, view the facility primarily as a measure to improve liquidity and stabilise foreign exchange markets rather than as a direct trigger for a sustained appreciation in the rupee or a major increase in India's forex reserves.
The large inflows are expected to support banks' deposit mobilisation and could put some downward pressure on deposit rates. At the same time, the increased availability of relatively cheaper deposits could temporarily weigh on banks' net interest margins (NIMs).
Estimates suggest NIMs could contract by around 3-15 basis points, with one basis point equal to 0.01 percentage point. The pressure is expected to ease over time as banks rebalance their funding mix.
Several lenders indicated during their first-quarter FY27 earnings calls that they would initially use the additional liquidity to replace expensive bulk deposits, potentially helping contain the impact on profitability.