Banks are accelerating efforts to raise foreign currency deposits after the RBI decided to end its concessional FCNR(B) swap facility earlier than scheduled; total mobilisation could reach $60-70 billion by August-end
Mumbai/New Delhi: The Reserve Bank of India’s (RBI) decision to end its concessional swap facility for Foreign Currency Non-Resident (Bank), or FCNR(B), deposits earlier than planned has triggered a fresh mobilisation drive among banks.
More than $52 billion had already been raised under the facility by August 13, and banks are now preparing to step up their efforts over the next two weeks. Bankers and economists estimate that total FCNR(B) deposits mobilised under the concessional swap facility could reach $60-70 billion by the end of August.
Banks accelerate deposit mobilisation
Banks had initially planned to raise deposits from non-resident Indian (NRI) customers gradually over the next six weeks.
However, following the RBI’s decision to close the facility to deposits mobilised after August 31, banks are now contacting NRI customers more aggressively to bring forward deposits that would otherwise have arrived in September.
A senior banker at a public sector bank said banks had already secured the funding lines required to attract NRI deposits. The focus is now on maximising mobilisation before the facility closes.
According to the banker, initial expectations were for FCNR(B) deposits of around $35-40 billion, but mobilisation has already exceeded $52 billion.
The banker expects at least another $10 billion to come in, potentially taking the total beyond $60 billion.
RBI ends facility ahead of schedule
The RBI announced last week that its concessional swap facility for FCNR(B) deposits would be available only for deposits mobilised up to August 31.
The decision came roughly a month earlier than originally expected.
The central bank said the facility had received an encouraging response and had resulted in significant foreign-exchange inflows. As a result, it decided to limit the facility to deposits mobilised by the end of August.
Banks, however, will be able to undertake the corresponding swaps under the facility until September 11.
The swap facilities for External Commercial Borrowings (ECB) and Overseas Foreign Currency Borrowings (OFCB) will continue according to the previously announced schedule until December 31, 2026.
FCNR(B) inflows surge rapidly
The pace of mobilisation has accelerated sharply since the scheme was introduced.
The RBI launched the facility on June 8. Subsequently, an FAQ issued on June 23 clarified that banks could provide leverage to customers against FCNR(B) deposits.
The mobilisation figures show the rapid increase:
| Date | FCNR(B) deposits mobilised |
|---|---|
| July 17 | About $17.4 billion |
| July 31 | About $36.7 billion |
| August 13 | More than $52 billion |
In just 13 days, more than $15.5 billion was mobilised between July 31 and August 13.
This indicates how quickly banks and their NRI customers responded to the availability of the concessional swap facility.
Foreign banks take the lead
Foreign banks have reportedly been among the biggest beneficiaries of the facility and have mobilised substantial amounts.
Some foreign banks may have already raised amounts close to, or even above, their initial expectations.
Private-sector and public-sector banks, with some exceptions, were comparatively slower during the initial phase.
One reason was the additional time required to arrange funding lines that would allow banks to provide leverage to NRI customers against their FCNR(B) deposits.
However, mobilisation has accelerated across the banking sector over the past few weeks.
Why FCNR(B) deposits matter
FCNR(B) accounts allow eligible non-resident Indians to hold deposits in foreign currencies with Indian banks.
For banks, these deposits can provide an important source of foreign-currency funding.
The RBI’s concessional swap facility made it more attractive for banks to raise such deposits because banks could access foreign-exchange swaps on favourable terms.
The strong response suggests that both banks and NRI customers found the facility financially attractive.
Banks now have only two weeks to maximise mobilisation
The RBI’s earlier-than-expected decision has significantly changed banks’ strategies.
A senior executive at a private-sector bank said institutions that had previously expected to raise deposits gradually over six weeks are now attempting to complete the mobilisation within two weeks.
The banker expects approximately another $10 billion to be raised based on recent trends.
Normally, deposit mobilisation under such schemes tends to accelerate toward the final weeks. In this case, however, the inflow was strong from the beginning and has accelerated further following the RBI’s announcement.
RBI’s decision surprises bankers
Some bankers have described the RBI’s decision to end the facility early as unusual.
The move came only about a week after RBI Governor Sanjay Malhotra had indicated on August 5 that there was no proposal to withdraw the scheme.
The subsequent decision to restrict the facility to deposits mobilised by August 31 therefore surprised some market participants.
Bankers believe the central bank may have decided to close the facility early because the foreign-exchange inflows had already exceeded expectations.
Why did the RBI act now?
One possible reason is the stronger-than-expected foreign-currency inflow generated through the facility.
Initially, banks and market participants expected FCNR(B) mobilisation to be around $35-40 billion. With more than $52 billion already raised by August 13, the inflows have substantially surpassed those expectations.
A senior official at another large public-sector bank said the strong inflows could be the principal reason behind the RBI’s decision.
Goura Sen Gupta, Chief Economist at IDFC FIRST Bank, also described the RBI’s move as appropriate, arguing that foreign-currency inflows could have become even larger if the facility had remained open through September.
What does it mean for banks and the rupee?
The large FCNR(B) inflows provide Indian banks with additional foreign-currency resources and can support the country’s external funding position.
At the same time, the RBI’s decision to bring the concessional window to an early close indicates that the central bank believes the objective of attracting foreign currency has been substantially achieved.
For banks, the immediate priority is clear: mobilise as many eligible FCNR(B) deposits as possible before August 31.
Key Takeaway
The RBI’s concessional FCNR(B) swap facility has attracted a much stronger response than initially expected, with more than $52 billion mobilised by August 13.
With banks now racing to bring forward deposits before the August 31 deadline, market participants expect total mobilisation to reach approximately $60-70 billion.
The episode also highlights the RBI’s ability to adjust its foreign-exchange management measures quickly when inflows significantly exceed initial expectations.
