Non-Resident Indians (NRIs) have deposited $17.41 billion in Indian banks through Foreign Currency Non-Resident (FCNR) deposits under a new deposit incentive scheme. This is a good start to the campaign to attract dollars and strengthen the rupee. Announced on June 5 and launched three days later, the scheme allows NRIs to make leveraged deposits and will run till the end of September. In this, the Central Bank takes the risk of hedging, due to which foreign investors get an opportunity to earn up to 14 percent return on their money.
According to the Reserve Bank of India (RBI), its dollar swap facility received a total of $20.72 billion as of July 17, of which FCNR-B deposits had the highest share. Apart from FCNR(B) deposits, the swap window also received borrowings of $1.97 billion in forex and $1.34 billion through External Commercial Borrowings (ECB). Commercial banks exchange rupees for dollars at guaranteed rates at the swap window. In a press release accompanying the data, RBI said that the swap facility has witnessed considerable interest and there has been a steady inflow of foreign exchange since June 8, 2026. Let us try to understand it in detail…
This is a ‘good start’
Gaura Sengupta, Chief Economist of IDFC First Bank, called it a “very good start” for the capital inflow scheme. He said in the Mint report that given the speed at which this is happening, this scheme could lead to more inflows than our estimate of $50 billion of total FCNR-B inflows. He said that large scale inflow is expected in August and September. Sengupta said that for the ECB, we are maintaining an estimate of additional inflow of $ 20 billion.
He further said that the BoP surplus is expected to be $25 billion in FY 2027, and this will help in reducing the pace of rupee’s decline. The FCNR Deposit Scheme was launched by the Central Bank to promote capital inflow and strengthen India’s balance of payments amid global uncertainties. Under this facility, banks can raise fresh FCNR-B deposits and swap dollars with the RBI at a concessional rate. The FCNR-B window will remain open till September 30, while for OFCB and ECB this facility is available till December 31.
more investment than expected
Punjab National Bank Managing Director and Chief Executive Ashok Chandra said in the media report that this is an excellent indication of what kind of funds can come under this scheme. Chandra said that it was expected that the inflow would increase after August 15 and would continue till the end of the scheme. He said that RBI’s disclosures today show that inflows may be higher than initial estimates. The government bank aims to raise FCNR deposits of $2.5 billion and so far it has received $425 million. On July 16, media reports said that there could be an FCNR-B inflow of $12-15 billion into the banking system since the launch of the scheme.
Many challenges emerged
According to media reports, due to increasing cost of foreign funding, banks are selectively accepting FCNR-B deposits of more than $1 million from NRIs. Small leveraged deposits are no longer profitable, which may undermine India’s target of attracting inflows of $30-40 billion. Initially, bankers faced challenges such as tax concerns among NRIs in markets like the US and UK, uncertainty over the actual source of inflows and operational clarifications (which came later in June). Due to this, RBI and the government had to hold separate meetings with banks in mid-July to encourage rapid fund raising. According to the report, domestic banks do not expect large-scale FCNR-B deposit inflows from the US as many NRIs there are cautious due to stricter tax scrutiny and compliance challenges after the 2013 program.
Barclays report
Officials of the Central Bank and the Union Finance Ministry have held separate meetings with top executives of banks regarding the incentive FCNR scheme. Barclays said in a report issued on July 16 that it expected $25-30 billion of potential FCNR inflows over the next few months – with scope for growth – but that it was unlikely to see a repeat of the massive inflows of 2013. The report notes that adoption so far has been slow compared to the market’s lofty expectations of around $40-50 billion (and some expect inflows of up to $70 billion).
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