Mumbai: The Reserve Bank of India (RBI) will close its special foreign currency non-resident bank or FCNR(B) deposit facility a month earlier than planned after the scheme attracted $52.3 billion in foreign-currency inflows till 13 August.
The facility, announced on 5 June and implemented on 8 June to attract foreign-exchange inflows, will now be available for deposits mobilized only until 31 August instead of the earlier 30 September deadline, the central bank said in a press release. However, banks can avail of the corresponding swaps with the RBI until 11 September.
In its June monetary policy, RBI had allowed banks to raise fresh and renewed FCNR(B) deposits with maturities of three to five years and swap those dollars with the central bank at a concessional rate. The FCNR scheme allows non-resident Indians (NRIs) to make leveraged and unlevered deposits at Indian banks.
The pace of capital inflows under FCNR(B), external commercial borrowings (ECB) and overseas foreign-currency borrowings has been much heavier than expected. In just 67 days of the scheme’s implementation, India mobilized $56.85 billion in foreign-currency inflows through the RBI’s special window, with FCNR(B) deposits accounting for 92% of the total, official data showed. FCNR(B) deposits accounted for $52.3 billion, while overseas foreign currency borrowings (OFCBs) contributed $2.81 billion and external commercial borrowings (ECBs) $1.74 billion.
“Based on the encouraging response to the Swap Facility for FCNR(B) deposits and the resultant forex inflows,” the RBI said it had decided to make the facility available for FCNR(B) deposits only for deposits mobilized until 31 August.
However, the central bank retained the original timeline for the other two channels. The scheme for ECBs and OFCBs will continue to remain open until 31 December, 2026, as hitherto, it said.
On 5 August, RBI governor Sanjay Malhotra said at the latest monetary policy conference that despite strong inflows witnessed in its FCNR(B) deposit window, the central bank has no immediate plans to pre-close or postpone the scheme before its 30 September deadline.
“We have got robust flows as you have mentioned, and we do hope to get good healthy flows going forward. But as of now, there is no proposal under consideration to close the scheme prematurely. We will keep you posted on this,” Malhotra had, while answering a query at the post-policy press conference. During the monetary policy announcement, he had also said that the country’s balance of payments (BoP) will see a healthy surplus in the current financial year.
FCNR(B) deposits allow non-resident Indians to hold foreign-currency deposits with Indian banks, insulating the depositor from exchange-rate fluctuations. Under the special swap arrangement, banks could access dollar liquidity from the RBI against the foreign-currency inflows mobilised through the facility.
“The early closure of the FCNR (B) window indicates that the response to the scheme has exceeded RBI estimate,” Gaura Sengupta, chief economist at IDFC First Bank said. She also said that total inflows under FCNR(B) are still expected to be robust at $70 billion against the earlier expectation of $80-90 billion.
“Banks are likely to push for FCNR(B) deposits in the last two weeks of the scheme,” Sengupta said.
