After the Reserve Bank of India unexpectedly announced on August 14 that it would close the concessional dollar-rupee swap facility ahead of its original end-September deadline, banks are racing to lock in foreign currency non-resident (bank), or FCNR (B), deposits before the revised deadline of August 31.
## Swap Window Cut By One Month
Initially unveiled on June 8 to attract stable dollar inflows, the FCNR (B) swap window was set to run until September 30. But buoyed by a robust response and growing foreign exchange inflows, the RBI decided to pull the plug early. The facility will now close on **August 31**, though banks can still use the swap benefit until **September 11**.
For overseas foreign currency borrowings (OFCBs) and external commercial borrowings (ECBs), the facility remains open until **December 31, 2026**, as originally stated.
## Banks Step Up Efforts to Attract NRI Deposits
With just around two weeks remaining before the revised cut-off, lenders are accelerating efforts to engage non-resident Indian (NRI) customers. Previously staggered over a six-week period, deposit mobilisation is now being expedited. Bankers have already established funding lines and are pushing hard to gather as many FCNR (B) deposits as possible in the waning days.
So far, by **August 13**, over **US $52 billion** has been mobilised under the scheme. That number is expected to grow substantially—with estimates ranging between **US $60–70 billion** by **August end**.
## Incentives Make FCNR (B) More Attractive
Several banks, including HDFC Bank, ICICI Bank, and Axis Bank, have sharply raised rates to pull in more dollar-based FCNR (B) deposits. What were earlier 2.5–3% rates have surged to **6–7%**, and some banks are even offering up to **7.5%** on US dollar denominated deposits.
The swap facility also allows lenders to avoid hedging costs. This cost saving means they can afford to offer higher interest rates, making offerings more appealing for NRIs.
## Why the Window Was Shortened
Economists and bankers say the RBI’s decision stems from the surprising strength of dollar inflows. Some warn that allowing the window to run through September would have resulted in excessive Indian rupee liquidity, which could put strain on financial stability.
Gaura Sen Gupta, Chief Economist at IDFC First Bank, described the move as “prudent,” citing concerns about the volume of inflows that would have to be settled in three to five years. She forecasts that FCNR (B) deposits will total **US $70 billion** by **August end**, assuming banks aggressively push in the final weeks.
In terms of broader foreign capital inflows, including OFCBs and ECBs, she estimates total mobilisation could rise to **US $90 billion**, with a sizeable balance of payments surplus—around **US $40 billion**—even after the truncated FCNR (B) window.
## Mobilisation So Far: By the Numbers
Here’s how FCNR (B) inflows have been progressing:
– As of **July 17**: approx. **US $17.4 billion** mobilised.
– By **July 31**: rose sharply to **US $36.7 billion**.
– By **August 13**: crossed **US $52 billion**. Over **US $15.5 billion** was collected in just 13 days from end-July to mid-August.
Many banks initially lagged, especially public sector lenders, as they scrambled to establish funding channels. Foreign banks led the way in deposit mobilisation, and both private and state-owned players picked up pace more recently.
## Looking Ahead: What to Expect
With the August 31 deadline approaching, banks are expected to go into overdrive. NRIs who hoped to wait longer now feel pressure to act quickly. Estimates suggest that in just the last two weeks, **US $10 billion** or more could pour in, pushing the total FCNR (B) deposits closer to **US $65–70 billion**.
Including OFCBs and ECBs, the overall figure of foreign currency mobilisation might reach **US $80–85 billion**.
Despite earlier statements by Governor Sanjay Malhotra on **August 5** indicating there was no plan to end the scheme early, the RBI’s decision was reversed. The early closure reflects confidence in having met inflow goals.
## Key Takeaways
– The concessional swap facility will now close on **August 31**, instead of September 30. Banks can use the swap benefit until **September 11**.
– FCNR (B) deposit mobilisation has already reached **US $52 billion** by **August 13**, and could rise to **US $60–70 billion** by the end of August.
– Interest rates on these deposits have jumped from **≈2.5–3%** to between **6–7%**, sometimes up to **7.5%**, especially for dollar-denominated instruments.
– OFCB and ECB routes remain open through **December 31, 2026**, contributing to broader foreign capital mobilisation projected up to **US $90 billion**.
– Early closure follows strong foreign exchange gains and aims to preempt potential excess liquidity in Indian rupees.
This tightening shift marks a strategic move by the RBI to balance attracting external dollar inflows with maintaining financial equilibrium. In the coming days, both banks and NRIs will likely move rapidly to take full advantage of the concessional swap window before the deadline arrives.
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