Noida, Sep 2 (APAC Media): Inflows through Foreign Currency Non-Resident (Bank), or FCNR(B), deposits have crossed the $100-billion mark, significantly higher than the Reserve Bank of India’s initial estimate for the special foreign currency mobilisation window, according to a report.
The strong response from non-resident depositors prompted the central bank to close the FCNR(B) window nearly a month ahead of its scheduled September 30 deadline.
The RBI had launched the special swap facility on June 8, while banks began accepting FCNR(B) deposits under the arrangement from June 23. The facility was aimed at helping banks mobilise foreign currency resources by allowing them to swap the funds with the central bank for rupees.
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RBI Governor Sanjay Malhotra said the decision to close the facility early was based on the response received and an assessment of market conditions.
The move was “well-thought-out, calibrated, prudent and data-drivenâ€, Malhotra told the Financial Times.
The RBI had earlier estimated that the FCNR(B), external commercial borrowing (ECB) and overseas foreign currency borrowing (OFCB) routes could together attract around $80 billion.
However, inflows through the three channels had reached $72.85 billion by August 21, with FCNR(B) deposits accounting for the largest share at $65.4 billion. OFCBs contributed $4.86 billion, while ECBs accounted for $2.59 billion.
The overall inflow crossed the $100-billion mark by August 31, according to the report.
Banks can continue to access the RBI’s swap facility for FCNR(B) deposits that had already been contracted until September 11. Fresh mobilisation under the special window, however, has ended.
The ECB and OFCB routes will remain open until December 31, 2026.
The strong inflows are expected to provide support to India’s balance of payments and help strengthen foreign currency resources. The development comes after India’s foreign exchange reserves declined by around $8 billion during the April-June quarter.
The latest inflows could also help the country’s capital account move into surplus during the current financial year. Estimates cited in the report suggest the capital account surplus could exceed $65 billion, reversing deficits recorded in the previous two years.
However, the surge in foreign currency inflows also presents a liquidity-management challenge for the RBI. As more dollars enter the system, the central bank has to absorb the resulting rupee liquidity to maintain monetary and financial stability.
Malhotra also pointed to the rising cost of managing such inflows. He indicated that the benefit from each additional dollar swapped could decline, while the cost of sterilising the liquidity could rise as the funds remain with the central bank for longer periods.
The early closure of the facility, therefore, reflects the RBI’s attempt to balance the benefits of stronger foreign capital inflows with the cost of managing excess liquidity.
–ENDS–
Disclaimer:Â This article is for informational purposes only and is based on publicly available information. APAC Media is not responsible for investment decisions or losses. Please conduct your own research or consult a financial adviser before investing.
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