RBI FCNR(B) Scheme Draws $100 Billion from NRIs, India Forex Reserves Hit Record $729.3 Billion

The Reserve Bank of India’s efforts to attract foreign currency deposits from Non-Resident Indians have delivered a major boost to India’s foreign exchange reserves, with FCNR(B) inflows crossing $100 billion in just three months.

The strong response to the Foreign Currency Non-Resident (Bank) deposit scheme has helped push India’s forex reserves to a record $729.3 billion. The surge comes at a time when geopolitical tensions, volatile crude oil prices and pressure on the Indian rupee had created challenges for the country’s external finances.

The RBI launched a special FCNR(B) deposit window in June to encourage NRIs to park their overseas earnings in India. The scheme was initially expected to remain open until September 30, but the central bank closed the window a month early after inflows exceeded expectations and crossed the $100 billion mark by August 31.

The RBI Governor had earlier projected that the initiative could attract around $80 billion. However, the actual response from NRIs was significantly stronger, leading authorities to close the special window amid concerns that excessive short-term inflows could create risks when the deposits eventually mature or leave the country.

Banks will still be allowed to use the RBI's swap facility for deposits that had already been contracted before the closure, subject to the applicable deadline.

The massive inflow has strengthened India’s forex position after reserves had come under pressure earlier this year due to rising energy prices and global geopolitical tensions. India’s foreign exchange reserves had fallen to around $682 billion in July before recovering sharply.

The latest rise has provided the RBI with a stronger financial buffer and greater flexibility to intervene in currency markets when required.

The Indian rupee has faced pressure against the US dollar because of elevated crude oil prices and increased demand for foreign currency. However, the replenished forex reserves have given the RBI more room to support the rupee through interventions in both domestic and offshore currency markets.

The rupee strengthened during recent trading, reaching its strongest level since early July as the RBI used its improved forex position to support the currency.

The FCNR(B) scheme allows Non-Resident Indians to deposit their foreign earnings in India in designated foreign currencies instead of converting them into Indian rupees.

These deposits are fixed-term accounts, with both the principal amount and interest paid in foreign currency. This structure protects depositors from exchange-rate risks linked to fluctuations in the Indian rupee.

The RBI had introduced additional incentives to make FCNR(B) deposits more attractive after inflows through the scheme had slowed significantly in recent years.

Under the special arrangement introduced in June, the RBI offered a concessional swap facility for fresh FCNR(B) deposits with maturities ranging from three to five years. The facility helped reduce the foreign exchange hedging costs that banks would normally have to bear.

The programme quickly gained momentum. By early August, inflows had already reached more than $40 billion, before crossing the $100 billion mark by the end of August.

The latest FCNR(B) mobilisation is part of a strategy India has used during periods of external financial pressure. India has previously turned to its global diaspora to strengthen its foreign currency reserves.

A similar approach was used during the balance-of-payments crisis of 1991, when India faced severe pressure on its external finances. The strategy was again used in 2013, when India attracted billions of dollars from overseas Indians to counter capital outflows triggered by global market turbulence.

The latest $100 billion FCNR(B) inflow has once again highlighted the importance of NRI deposits in strengthening India's external financial position.

With forex reserves now at a record $729.3 billion, the RBI has a significantly larger buffer to manage currency volatility, finance external requirements and respond to potential shocks caused by rising oil prices or geopolitical developments.

The strong response to the scheme has also demonstrated the ability of India’s financial system to attract large foreign currency inflows from its overseas diaspora when supported by favourable policy measures.

As India continues to face uncertainty in global energy markets and pressure on the rupee, the record forex reserves could provide the RBI with greater stability and flexibility in managing the country’s currency and external financial position.