RBI Halts FCNR(B) Swaps Early Due to Record Inflows

The Reserve Bank of India (RBI) has opted to close its Foreign Currency Non-Resident (Bank) [FCNR(B)] deposit swap facility one month sooner than anticipated, moving the deadline from September 30 to August 31.

This accelerated closure stems directly from foreign currency inflows significantly surpassing initial expectations, indicating a robust response to the special measures.

Understanding the Inflow Surge

By August 13, FCNR(B) deposits alone had attracted $52.30 billion. This impressive figure contributed to a total foreign inflow of $56.84 billion secured through various special measures initiated by the central bank.

For context, this current inflow notably exceeds the $26 billion collected during a similar initiative undertaken in 2013, highlighting the scale of the recent success.

The swap facility, which became operational on June 8, was designed with a clear objective. It aimed to enhance dollar inflows into India and bolster the nation’s foreign exchange reserves.

The mechanism allowed banks to swap eligible overseas borrowings with the RBI, securing these transactions at favorable rates.

Continuation for Other Schemes

Despite the strong performance, RBI governor Sanjay Malhotra had previously stated there were no plans for a premature closure of the FCNR(B) facility.

Conversely, the swap schemes established for External Commercial Borrowings (ECBs) and Overseas Foreign Currency Borrowings (OFCBs) will proceed as originally scheduled. Their deadline remains set for December 31.

India’s overall foreign exchange reserves have also demonstrated significant growth, reaching $707 billion by the week ending August 7, reflecting a stronger external position.