The Reserve Bank of India’s forex swap window drew a record $127.23 billion in FCNR(B) deposits, providing stronger-than-expected firepower to bolster India’s balance of payments and defend the rupee amid global headwinds and US-Iran conflict.

The total forex currency inflows through the RBI’s three concessional swap schemes stood at $136.38 billion until 31 August, with much thinner contributions coming from overseas foreign currency borrowings (OFCBs) at $5.26 billion and external commercials (ECBs) at $3.89 billion.

The foreign currency non-resident (Bank), or FCNR(B), deposits had their most spectacular run to the banks in the final 10 days before closure of the swap window, nearly doubling their inflows from $65.40 billion garnered till 21 August, after the race had started on 8 August. As per the RBI update then, the total inflows until 21 August were $72.85 billion, with banks raising $4.86 billion via OFCBs and $2.59 billion through ECBs.

The RBI has now shut the FCNR(B) window but the special schemes for OFCBs and ECBs will remain open until 31 December 2026. The strong FCNR(B) deposit inflows made the RBI advance the cut-off date to 31 August from 30 September. The swap facility for FCNR(B) deposits, mobilised during 8 June till 31 August, will be available with the RBI until 11 September.

The RBI said Wednesday it has released provisional data for FCNR(B) deposits, OFCBs and ECBs. The figures are subject to final reporting, accounting and reconciliation.

Analysts had expected inflows of $70-$80 billion when the scheme was introduced. A similar RBI scheme in 2013 raised about $26 billion.

Meanwhile, ICICI Bank said it has mobilised $17.9 billion in FCNR(B) deposits under the RBI’s swap window, capturing 14% market share of the total inflows. State Bank of India is expected to beat its $10 billion target for FCNR(B) mobilisation. 

RBL Bank said it has garnered $3.4 billion from FCNR (B) deposits up to 31 August, the closure date of the concessional swap facility. The deposit mobilisation was supported by the bank's promoter, Emirates NBD and their affiliates, leveraging the strong UAE and India corridor.

The FCNR(B) deposit influx has improved forex reserves, eased liquidity and provided temporary relief to banks in deposit mobilisation. 

 Lifts forex reserves to record high

The country’s forex reserves reached an all-time high of $729.33 billion in the week ending 21 August, with the FCNR(B) inflows contributing to the increase.

As of 12 June (4 days after RBI introduced the swap facilities), the forex reserves stood at $672 billion. The net addition during this duration thus has been $58 billion. 

Inflows to help liquidity

The massive forex influx has pushed surplus liquidity in the banking system to Rs 6.65 lakh crore as on 31 August. 

Deposit growth, as per the recent fortnight print, has expanded to 14.7% YoY as of 15 August 2026, up from the 12-13% range seen in the first quarter of FY27.

The RBI will need to manage liquidity and overnight rates. Even as core liquidity in the banking system has gone up to over Rs 8 lakh crore by 15 August and could cross Rs 10 lakh crore by mid-September, the central bank will likely  introduce several liquidity absorption tools to contain the surplus. On top of that, inflation is inching up.

Banks’ CD issuances drop to 4-month low

Short-term fundraising by banks via the certificates of deposit (CD) route dropped to a four-month low in August amid massive mobilisation of FCNR(B) deposits and huge surplus liquidity in the banking system.

After the heavy inflows of FCNR(B) deposits, banks have reduced their dependence on bulk deposits and CDs.

According to Prime Database, banks raised Rs 68,130 crore through CDs in August, the lowest since April 2026. While issuances stood at Rs 45,700 crore in April, it rose to Rs 1.11 lakh crore in May, Rs 1.80 lakh crore in June and Rs 95,945 crore in July.

CD rates have also dropped to around 6.3% from going as high as 7.23% when RBI announced the swap scheme on 5 June.

CDs are short-term debt instruments issued by banks to raise funds, generally with maturities ranging from seven days to one year.

Loan growth to get support

Loan growth is expected to be strong in FY27, moving in the 14%-16% among banks. 

By swapping FCNR(B) deposits with the RBI for rupee liquidity, banks get the capital buffer to support robust credit growth. The banking sector’s credit-to-deposit ratio could also improve. 

The deployment of these deposits and an improving asset mix is expected to drive faster balance sheet growth and support earnings this year. Net interest margins, though, could face near-term pressure due to narrower spreads on the leveraged portion of FCNR (B) deposits. 

While the sizeable FCNR(B) inflows has significantly bolstered the liquidity buffers of the banks, it could throw up competition among banks for prime borrowers. “Given the magnitude of these inflows, its profitable deployment is likely to take some time and could intensify competition for quality borrowers,” said Sachin Sachdeva, vice-president and co-group head, financial sector ratings, at ICRA. “The near-term impact could be lower loan yields and some moderation in margins.”