The Indian diaspora lapped up higher-priced dollar deposits, parking a staggering $127.23 billion with lenders — almost six times the $23 billion mobilised in 2013 when the Reserve Bank of India had launched a similar scheme — taking total inflows under the latest forex swap windows to a whopping $136.38 billion as of August 31.
However, the rupee did not see the desired impact from the dollar pile-up. After plumbing to a lifetime low of 96.87 on May 20 — a major reason for the RBI to launch the scheme — the rupee was at 95.71 on June 8, when the scheme was launched, and closed at 94.95 on Tuesday, a day after the FCNR-B window was closed, and at 94.97 on Wednesday.
The influx of dollars has crossed even the upper estimates of many analysts by a wide margin. Most had pegged the mobilisation at around $80 billion under the three-year and five-year money that the Reserve Bank had sought through three forex swap windows opened on June 8 — for foreign currency non-resident bank (FCNR-B) deposits, external commercial borrowings (ECBs) by non-bank lenders, and overseas foreign currency borrowings (OFCBs) by lenders and non-lenders.
The RBI offered free hedging and allowed borrowers to price the funds at their terms. It also allowed banks to leverage lending against the deposits, with leverage ranging from 9x at leading private sector banks such as HDFC Bank and ICICI Bank to 19x at banks such as HSBC.
The central bank had opened the three swap windows to shore up depleting forex reserves, which had fallen from a high of $728.5 billion in the last reporting week of February 27 to around $675 billion by the last week of May, as the rupee came under severe pressure after the Iran war began.
In the latest reporting week ended August 21, the forex kitty stood at a new high of $729.4 billion, an increase of $63.5 billion since the swap windows were opened on June 8.
Significantly, the RBI had on August 15 announced that the FCNR-B window would be closed on August 31, a full month ahead of the original schedule, while retaining the December 31 closure date for ECBs and OFCBs.
In a statement on Wednesday, the central bank said total inflows through the concessional forex swap facilities had touched $136.38 billion as of August 31. Of the total, inflows through FCNR-B deposits stood at $127.23 billion, while OFCBs accounted for $5.26 billion and the ECB route for $3.89 billion. The numbers are subject to final reporting, accounting and reconciliation, the RBI said.
The RBI had opened a similar NRI deposit drive in 2013 to shore up the rupee, which was under severe pressure following the US Federal Reserve’s tapering announcement. The scheme mobilised $23 billion at the time.
With the massive inflow, the core banking system liquidity could peak above Rs 10 lakh crore in September, says Madhavi Arora, chief economist, Emkay Global.
“With the liquidity impact now larger than anticipated, some durable liquidity-absorption tools are likely to be deployed, including FX shorter tenor sell-buy swaps and MSS, or even ICRR (less likely),” she said.