RBI’s latest FX mobilisation raised $136.38 billion, nearly five times the $26 billion secured during the comparable 2013 exercise.
MUMBAI: The Reserve Bank of India’s special foreign-currency mobilisation window, launched June 8, closed with cumulative inflows of $136.38 billion as of August 31, nearly five times the $26 billion raised during India’s comparable 2013 exercise. The bulk, $127.23 billion, came through Foreign Currency Non-Resident deposits, with the remainder split between Overseas Foreign Currency Borrowings and External Commercial Borrowings.
The scale surprised even the RBI itself, which advanced the FCNR(B) window’s closing date from September 30 to August 31 after inflows surged past expectations in the final weeks.
How the RBI Made This Attractive
The mechanism was straightforward but consequential. Commercial banks normally hedge foreign-currency deposit risk in private markets at roughly 3.5% annually, a cost that eats into depositor yields. Under this facility, the RBI stepped in as counterparty, absorbing 100% of currency risk on FCNR(B) deposits through a zero-cost swap and charging only 1.5% on OFCBs and ECBs. Combined with waived reserve requirements, this let banks offer NRI depositors tax-free yields between 6.0% and 7.1%, sharply higher than before. Banks in GIFT City further amplified the effect, disbursing $52.82 billion in leverage-backed loans against these deposits, which explains why FCNR(B) inflows nearly doubled from $65.4 billion to $127.23 billion in just the final ten days of August.
Reserves Hit Records, the Rupee Barely Moved
India’s foreign exchange reserves climbed for eight straight weeks to a record $729.3 billion by August 21, up nearly $50 billion since June. Yet USD/INR stayed essentially flat, moving from 94.95 to 94.97 over the same period. This wasn’t coincidental: the RBI absorbed incoming dollars directly into reserves through swap transactions rather than letting them clear in the open spot market, deliberately containing any appreciation pressure the inflows might otherwise have created.
A Liquidity Wave the Banking System Wasn’t Quite Ready For
Converting $136 billion of foreign currency into rupees generated an enormous liquidity surge. Banking system surplus, which stood between ₹6 and ₹6.65 lakh crore in late August, jumped to a record ₹9.71 lakh crore by September 2, with analysts projecting it could cross ₹10 lakh crore within the month. This pushed the Weighted Average Call Rate down to 4.98%, notably below the policy repo rate, effectively loosening monetary conditions even as the RBI officially maintained a neutral stance, complicating policy transmission.
Winners on the Balance Sheet
The inflows reshaped bank liability structures. Deposit growth accelerated to 14.7% year-on-year, FCNR(B) deposits alone now representing about 4.5% of total systemic deposits, while the loan-to-deposit ratio eased from 82.7% to 81.9%. ICICI Bank led individual mobilisation with $17.88 billion, State Bank of India cleared its $10 billion target, and RBL Bank’s $3.4 billion haul far outpaced its usual market share. Brokerages like Motilal Oswal raised systemic credit growth forecasts by 150 basis points to 15.5-16% for FY27, though ICRA cautioned that thin spreads on leverage-backed deposits will pressure near-term net interest margins.
What This Actually Costs the RBI
The zero-cost hedging came at a real price to the central bank. Independent estimates from Emkay Global and SBI Research place the five-year cumulative hedging cost on the $127.23 billion FCNR(B) corpus between $15.9 billion and $22.2 billion, potentially reducing RBI’s dividend transfers to the government by over ₹1 lakh crore cumulatively. This is partly offset by interest income on the dollars now invested in US Treasuries, which yield around 5.3% on 30-year paper, and remains manageable relative to RBI’s ₹91.97 lakh crore balance sheet.
The Deferred Bill
This mobilisation effectively creates a structural obligation: roughly $127 billion in FCNR(B) deposits, mostly 5-year tenors, matures between June and August 2031, when the RBI must deliver dollars back to depositors. Unlike 2013, when similar facilities addressed an acute current account deficit, India now enters this cycle from relative strength, Nomura projects a $66 billion balance of payments surplus for FY27, which should ease rollover pressure when the redemption wall arrives.
Managing the Immediate Overhang
For now, the RBI faces a nearer-term puzzle: how to drain the liquidity surplus without hurting bank margins or destabilising bond yields. Commercial banks have proposed one-year FX sell/buy swaps that could absorb roughly $45 billion without the profitability hit that an incremental Cash Reserve Ratio hike would cause, while Variable Rate Reverse Repo auctions and Open Market Operation bond sales remain available but carry their own trade-offs.
What to Watch
Several deadlines and data points will shape how this story develops: the September 11 cutoff for banks to execute FCNR(B) swaps, the December 31 close of the ECB/OFCB window, and the mid-2027 point when initial lock-in periods expire, potentially triggering premature withdrawals. Longer term, market participants should track the RBI’s forward book, which already hit $136.77 billion at end-July, banking liquidity trends, and how smoothly the 2029-2031 maturity wall gets managed as it approaches.
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