FCNR(B) deposits may have already surpassed 2013 levels in 45 days; SBI sees $65-70 billion by scheme end

The Reserve Bank of India's (RBI's) special measures to attract foreign currency deposits have already brought in nearly $20 billion, with Foreign Currency Non-Resident (Bank) [FCNR(B)] deposits emerging as the biggest contributor, according to an SBI Ecowrap report. 

The report said RBI data showed total inflows of about $20 billion up to July 17, including $17.4 billion through FCNR(B) deposits. SBI Ecowrap estimates that FCNR(B) mobilisation has since crossed the levels achieved during the 2013 special deposit scheme, accomplishing in about 45 days what took nearly three months then. 

Public sector banks, particularly larger lenders, have led the mobilisation drive by leveraging their overseas customer base and offering attractive rates under the RBI's concessional swap window, the report said. 

SBI expects a major portion of FCNR(B) deposits maturing in August and September 2026 to be renewed under the new scheme, supported by higher interest rates. It estimates total FCNR(B) inflows of $65-70 billion by the end of the scheme, while overall inflows—including Overseas Foreign Currency Borrowings (OFCB) and External Commercial Borrowings (ECB)—could reach $80-85 billion. 

Why forex reserves have not risen in tandem 

Despite the sharp rise in FCNR(B) deposits, markets have questioned why RBI's foreign currency assets (FCA) and foreign exchange reserves have not increased proportionately and why the rupee has continued to weaken. 

According to SBI Ecowrap, the apparent mismatch is largely due to timing. Banks swap FCNR(B) deposits with the RBI on designated dates during the week to obtain rupee liquidity. As a result, deposits mobilised by banks are reflected in RBI's foreign currency assets only after a lag. 

The report noted that while FCNR(B) inflows stood at $17.4 billion as of July 17, RBI's foreign currency assets had increased by only $7.6 billion since June 8, suggesting that only part of the deposits had been swapped into RBI reserves. 

SBI expects foreign currency assets to rise by another $10-12 billion during the July 17-31 period, taking the total increase in FCA to $17-20 billion by the end of July as the accounting catches up with deposit mobilisation. 

Rupee depreciation remains a concern 

The report said the rupee's weakness despite robust capital inflows remains a concern. While the currency initially strengthened after RBI announced concessional swap facilities for fresh FCNR(B) deposits, OFCBs and ECBs, gains faded amid heightened geopolitical tensions in West Asia, volatile crude oil prices and cautious foreign portfolio investor (FPI) sentiment. 

SBI argued that allowing the rupee to continue depreciating despite healthy capital inflows could create a self-reinforcing cycle of weakness once the FCNR(B) mobilisation window closes on September 30, 2026. 

It said the exchange rate has shifted from acting as a "shock absorber" to becoming vulnerable to external shocks, making currency stability critical amid global trade disruptions, supply chain uncertainties and uneven capital flows. 

Calls for stronger RBI intervention 

The report also suggested that RBI's interventions in the foreign exchange market have been relatively modest since geopolitical tensions in West Asia escalated. 

Using a censored Tobit model to estimate RBI's intervention strategy, SBI found that the central bank has intervened by an average of $14 million a day to counter rupee depreciation. However, this level of intervention has not been sufficient to reduce currency volatility or prevent further depreciation. 

In comparison, a similar study by economist Ghosh (2001) found that during the 1997-98 period under former RBI Governor Bimal Jalan, the RBI intervened by an average of $55 million a day, despite India's foreign exchange reserves being only about $29 billion at the time. Those interventions were found to be more effective in stabilising the rupee. 

An analysis of recent intervention episodes also suggested that larger and more credible interventions had a more lasting impact on the rupee than smaller operations, which often provided only temporary relief before depreciation resumed. 

BoP outlook turns positive 

SBI Ecowrap expects RBI's special measures to significantly improve India's external position in FY27. 

The report projects additional capital account inflows of $75-85 billion, alongside inward remittances exceeding $150 billion, foreign direct investment (FDI) inflows of $15-18 billion, and stronger foreign institutional investment (FII) flows during the first half of FY27. 

As a result, India's balance of payments (BoP) is expected to record a surplus of more than $50 billion in FY27, while the current account deficit is projected to remain contained at 1-1.2% of GDP. 

The report also pointed to robust banking system liquidity, with bank deposits growing 12.7% year-on-year as of mid-July. Time deposits rose by ₹87,995 crore during the first fortnight of July, a trend SBI believes was supported by FCNR(B) inflows.