RBI forex window draws $20.7 billion in five weeks

Indian banks attracted $17.41 billion in foreign currency deposits from non-resident Indians under a special Reserve Bank of India (RBI) window between 8 June and 17 July, marking a stronger start than economists and bankers had expected.

The Foreign Currency Non-Resident Bank, or FCNR(B), deposits accounted for most of the $20.72 billion mobilized under three concessional swap facilities, the RBI said on Monday, 20 July.

Overseas foreign currency borrowings by banks brought in another $1.97 billion, while external commercial borrowings by Indian companies contributed $1.34 billion.

The RBI announced the measures on 5 June and opened the facilities three days later as part of an effort to strengthen India’s balance of payments and attract foreign currency while the rupee remained under pressure from high oil prices and capital outflows.

Under the arrangement, banks can swap newly raised foreign currency with the RBI at concessional rates. The facility lowers hedging costs and makes it more attractive for banks to offer dollar and other foreign currency deposits to non-resident Indians.

The response has been considerably faster than during a similar program introduced amid the rupee crisis of 2013. That initiative attracted about $10 billion during its first seven weeks, compared with more than $20 billion under the current facilities in less than six weeks.

Bank of America economists said the present pace could put total inflows on course to reach about $80 billion if collections follow the pattern seen in 2013.

The inflows may ease concerns over India’s external finances as Brent crude trades near $90 a barrel.

IDFC First Bank Chief Economist Gaura Sen Gupta estimates India could post a balance-of-payments surplus of about $25 billion this fiscal year, with potential for a larger surplus if FCNR(B) deposits continue to rise.

“These inflows give the RBI more firepower to keep depreciation pressures on the rupee in check,” Sen Gupta told Reuters.

India’s foreign exchange reserves stood at $675.16 billion in the week ended 10 July, down from a record $728.49 billion in February after the RBI sold dollars to manage the rupee’s decline.

The FCNR(B) swap window will remain open until 30 September. The facilities covering overseas bank borrowings and external commercial borrowings will continue until 31 December.

The inflows improve near-term dollar availability but are not permanent capital. FCNR(B) deposits and overseas loans must eventually be repaid, while the concessional swap terms transfer part of the currency risk to the RBI.

That makes the program an effective buffer against immediate pressure rather than a substitute for more durable foreign investment and export earnings.