RBI rule tweak opens door to $50 billion inflow: report

A small change in a Reserve Bank of India (RBI) circular could help draw as much as $50 billion into the country, Bloomberg reported, as policymakers try to stabilize the rupee and rebuild foreign investor appetite for Indian assets.

The change allows banks to keep certain swap transactions with the RBI outside their net unhedged overnight foreign currency position.

Banks had been operating under tighter limits on such positions, making it harder to scale up foreign currency inflows even when the central bank was offering incentives.

The tweak applies to funds raised through Foreign Currency Non-Resident Bank, or FCNR(B), deposits, external commercial borrowings and overseas foreign currency borrowings.

By excluding these RBI-linked swaps from the position limit, the central bank has removed a balance-sheet constraint that could otherwise have capped the impact of its new inflow program.

The RBI announced the measures after pressure on India’s external account increased. Higher oil prices, equity outflows and a weaker rupee have pushed policymakers to seek more durable dollar inflows.

Under the FCNR(B) window, banks can swap eligible fresh foreign currency deposits with the RBI. The facility covers deposits of three to five years raised between 8 June and 30 September, with the swap window open until 16 October.

The structure effectively removes the swap cost for banks, allowing them to offer more attractive terms to non-resident depositors.

For external commercial borrowings and overseas foreign currency borrowings, the RBI has offered a dollar-rupee swap window at a fixed cost of 1.5% a year. The facility applies to eligible drawdowns and flows up to 31 December, with the window available until 15 January 2027.

Analysts estimate the combined package could bring in $40 billion to $50 billion, Bloomberg reported. Reuters separately reported that YES Bank and Emkay Global Financial also expect inflows in that range, while HDFC Bank said the measures could help bridge India’s projected balance of payments gap for FY27.

Goldman Sachs said the RBI and government measures could attract $30 billion to $50 billion in foreign inflows, helping stabilize the rupee near current levels rather than allowing a slide toward 100 per dollar.

The latest move recalls the RBI’s 2013 FCNR(B) swap window, introduced during the taper tantrum, which helped mobilize about $34 billion in foreign currency inflows. This time, the central bank is again using subsidized hedging and regulatory relief to encourage banks to bring in dollars.

The package is broader than the swap facilities. India has also removed taxes on foreign investments in government bonds and expanded the pool of securities available to overseas investors without limits. Those steps have already drawn more than $1 billion into government debt in three sessions, Reuters reported.

The measures could also strengthen India’s case for wider inclusion in global bond indexes. Reuters reported that Bloomberg Index Services is expected to seek investor feedback later this month on whether Indian government bonds should be added to its flagship Global Aggregate Index.

The immediate test will be whether banks can mobilize large non-resident deposits and overseas borrowings before the windows close. The longer test will be whether the inflows are enough to steady the rupee without leaving the RBI carrying too much currency risk.