At $127 bn, FCNR(B) deposits push RBI's forex drive beyond $136 bn, Pg17

Key Highlights:

• The Reserve Bank of India's special US dollar-rupee forex swap facility attracted provisional foreign exchange inflows of $136.377 billion by August 31.
• Foreign Currency Non-Resident (Bank) [FCNR(B)] deposits accounted for the largest share, bringing in $127.226 billion.
• The facility was launched on June 8 to encourage foreign currency inflows and support domestic liquidity amidst global pressures.
• The window for fresh FCNR(B) deposits closed early on August 31, following an "encouraging response".
• Concessional facilities for External Commercial Borrowings (ECBs) and Overseas Foreign Currency Borrowings (OFCBs) remain open until December 31, 2026.

RBI Swap Facility.jpg

Detailed Insights:

• The total inflows significantly surpassed initial expectations of $70-$80 billion from bankers and analysts.
• The scheme aimed to bolster India's foreign exchange reserves and stabilize the rupee, which were under pressure due to global uncertainties and trade tensions.
• FCNR(B) deposits allow non-resident Indians, Overseas Citizens of India, and Persons of Indian Origin to maintain savings in designated foreign currencies.
• Interest earned on FCNR(B) deposits is exempt from income tax in India for qualified non-resident depositors.
• The RBI's decision to close the FCNR(B) window early on August 31 highlights the success and rapid mobilization of funds under the scheme.
• The facility provided a concessional swap arrangement, making it attractive for foreign currency inflows into India.

Key Concepts Involved:

• Foreign Currency Non-Resident (Bank) [FCNR(B)] deposits: Fixed-term deposits maintained by non-resident Indians in foreign currencies with Indian banks.
• Overseas Foreign Currency Borrowings (OFCBs): Borrowings by Indian entities from overseas sources in foreign currency.
• External Commercial Borrowings (ECBs): Commercial loans raised by eligible resident entities from recognized non-resident entities.
• Forex Swap Facility: An arrangement where the Reserve Bank of India exchanges foreign currency for rupees with banks, often at a concessional rate, to manage liquidity and exchange rates.