Indian banks are seeing a strong response to the Reserve Bank of India’s (RBI) foreign currency deposit mobilisation scheme, with inflows approaching $2 billion a day. According to a Jefferies report dated August 24, banks mobilised $16 billion between August 13 and August 21 through FCNR-B deposits and other permitted foreign-currency routes, taking total inflows since June 8 to $73 billion.
Jefferies now expects the total mobilisation to reach $90-100 billion by August 31, significantly above its earlier estimate of $70-80 billion. The brokerage said substantial debt issuance completed recently, along with issuance in the pipeline, could support further inflows before the scheme closes.
How much has India raised through the scheme?
Of the $72.8 billion raised as of August 21, FCNR-B deposits accounted for $65.4 billion, while overseas foreign currency borrowings (OFCBs) contributed $4.9 billion and external commercial borrowings (ECBs) another $2.6 billion, Jefferies noted.
Jefferies estimates that the $90-100 billion potential inflow would amount to around 13-15 per cent of India’s foreign exchange reserves. It would also be equivalent to 3.3-3.6 per cent of bank deposits and 3.9-4.4 per cent of bank credit, highlighting the scale of the mobilisation.
Why is the FCNR-B scheme attracting funds?
FCNR-B accounts allow non-resident Indians (NRIs) to hold fixed deposits in India in permitted foreign currencies. Both the principal and interest are tax-free in India, while the funds are freely repatriable.
The 2026 scheme also offers banks a significant incentive. The RBI is bearing the full hedging cost on eligible fresh FCNR-B deposits, improving the economics for banks seeking to mobilise foreign-currency deposits. The scheme covers deposits with three-to-five-year maturities and also allows non-fund-based facilities that can support leveraged deposit mobilisation.
Is most of the money actually fresh inflow?
Jefferies said the mobilisation appears to be largely genuine fresh money. Data up to July 31 showed gross FCNR-B mobilisation of $37 billion, against a $28 billion increase in FCNR-B deposit balances. This means about 76 per cent of the gross mobilisation represented a net increase in deposits.
The brokerage expects the strong inflow momentum to continue, with the total potentially reaching $90-100 billion by the end of August. The RBI, however, has decided to close the FCNR-B window on August 31, a month earlier than originally indicated, following the strong response to the scheme.
Which banks have gained the most?
Foreign banks have emerged as significant beneficiaries of the mobilisation. Their share of FCNR-B deposits increased to 15 per cent as of July 30, from just 2 per cent on June 5.
What does the inflow mean for liquidity?
The large foreign-currency mobilisation has helped improve liquidity conditions in the banking system. Jefferies said system liquidity was in surplus by around Rs 3.5 lakh crore as of August 20, even though the RBI was absorbing part of the additional liquidity.
The brokerage expects improved liquidity to benefit non-banking financial companies (NBFCs) and small private-sector banks. It also noted that some large private banks have raised FCNR-B deposit rates by 15-25 basis points, particularly for larger deposits, amid higher US yields and increased borrowing costs.
How does this compare with the 2013 FCNR-B scheme?
The scale of the current mobilisation is substantially larger than the 2013 scheme in absolute terms. The 2013 FCNR-B and related foreign-currency borrowing scheme mobilised $34 billion in total, equivalent to about 12 per cent of India’s forex reserves at the time.
The 2013 scheme was introduced amid sharp rupee depreciation and external funding stress. In comparison, the 2026 scheme aims to attract fresh foreign-currency inflows and support external stability amid global volatility. The current scheme also provides for RBI bearing the full hedging cost on eligible fresh FCNR-B deposits.
Jefferies said the 2026 mobilisation has already exceeded its earlier expectations, with the pace of inflows suggesting that total foreign-currency mobilisation could reach $90-100 billion before the RBI’s August 31 deadline.
