Banks have raised $17.41 billion under the Reserve Bank of India’s special FCNR(B) deposit mobilisation scheme, in what is seen as a crucial pipeline of foreign exchange inflows to bolster India’s balance of payments and support a weakening rupee.

A total of $20.72 billion foreign exchange inflows has been collected until 17 July, the RBI has said in its first update since opening the swap window from 8 June.

Besides FCNR(B) deposits, banks drew in $1.97 billion through overseas foreign currency borrowings (OFCBs) and $1.34 billion via external commercial borrowings (ECBs).

At the current run-rate, an estimated inflow of $35-50 billion through the foreign exchange non-resident (Bank) or FCNR(B) route under the RBI’s special scheme is achievable, economists said. 

The RBI has left the window open until 30 September for fresh FCNR(B) deposits, with maturities of 3 to 5 years, under the swap facility. For the OFCBs and ECBs, the facility for offering concessional swaps is available up to 31 December 2026.

"The amount raised under the FCNR(B) deposit scheme is significantly above what news reports suggested and belies the prevailing narrative that banks were struggling to raise deposits, amid higher US rates and other bottlenecks," Nomura said in a note. 

The first round of FCNR(B) inflows seems to have come mostly from the foreign banks. Apart from State Bank of India (SBI), the other Indian banks haven’t seen a strong wave of flows. While not announcing their FCNR(B) targets or deposits collected so far, the private sector Indian banks have said that they expect the momentum to pick up from this quarter onwards. 

Punjab National Bank has raised $425 million in FCNR(B) deposits out of its target of $2.5 billion (including ECBs and OFCBs), while Indian Bank has mopped up $140 million (target is $2bn) and Union Bank of India $106 million (target 2bn). Central Bank of India has mobilised $8.4 million out  of its target of $400 million. SBI has reportedly taken in $1.5 billion of FCNR(B) deposits.

While announcing the forex exchange inflows on Monday, the RBI said the swap facility has seen avid interest and attracted steady forex inflows since 8 June.

The foreign exchange inflows, under three concessional swap facilities, is expected to give RBI the firepower to strengthen the balance of payments position and support the rupee. 

The RBI’s swap facility will also inject rupee liquidity into the system and banks may be able to utilise the funds to support their credit growth, which is currently outpacing domestic deposit growth.

Despite the forex inflows, the rupee has slipped to below the 96-mark against the dollar after hovering around the mid-95 levels for some time. The new slide has come after the US and Iran ended their ceasefire and renewed air strikes. This has led to a spike in oil prices and a firm dollar amid blockade of the strategic Strait of Hormuz. 

For making the FCNR(B) schemes lucrative, banks are allowing non-resident Indian customers to borrow many times their original deposit. While most of the banks are offering 9 times leverage, HSBC is lending up to 19 times the amount these investors deposit.