Foreign Currency Non-Resident (Bank) [FCNR(B)] deposit inflows may have already exceeded the levels seen during the 2013 special deposit mobilisation drive in just about 45 days, according to a report by SBI Research, which also raised concerns over the continued depreciation of the rupee despite strong capital inflows.
The report estimates that FCNR(B) inflows have crossed $26 billion since the Reserve Bank of India (RBI) opened a concessional swap window on June 8, surpassing the roughly $26 billion mobilised during the 2013 scheme over a three-month period.
“We believe that the total amount mobilised so far in 45 days has easily crossed the total amount mobilised in 2013 in three months,” SBI Research said in its latest Ecowrap report.
According to RBI data, total inflows under the special measures stood at $20.72 billion as of July 17, including $17.41 billion through FCNR(B) deposits, $1.97 billion through Overseas Foreign Currency Borrowings (OFCBs), and $1.34 billion through External Commercial Borrowings (ECBs).
SBI Research estimates FCNR(B) inflows had risen to $26-28 billion by July 23 and projected that total FCNR(B) deposits could reach $65-70 billion by the end of the scheme. Including OFCBs and ECBs, overall inflows are expected to touch $80-85 billion.
The report attributed the surge primarily to public sector banks, particularly larger lenders, leveraging their relationships with high-value customers across geographies. It also expects a significant share of FCNR(B) deposits maturing in August and September 2026 to be renewed under the new scheme, aided by higher interest rates.
Despite the robust inflows, SBI Research noted that the rupee has continued to weaken, raising questions in the market about the disconnect between capital inflows and the RBI's foreign currency assets (FCA).
The report said the lag could be explained by the process through which banks swap FCNR(B) deposits with the RBI for rupee liquidity. While FCNR(B) inflows are recorded immediately, their reflection in the RBI's foreign exchange reserves may happen with a delay.
Since June 8, the RBI's foreign currency assets had risen by only $7.6 billion as of July 17, compared with FCNR(B) inflows of $17.4 billion. SBI Research expects FCA accretion of $10-12 billion during July 17-31, which could take total reserve additions to $17-20 billion by the end of the month.
The report also expressed concern over the RBI's intervention strategy in the foreign exchange market, arguing that interventions have been “sporadic” since the onset of the West Asia conflict.