Banks raise $28 bn in NRI FCNR deposits after RBI swap window

Indian banks have mobilised nearly $28 billion in Foreign Currency Non-Resident (Bank) deposits — or FCNR (B) — from non-resident Indians after the Reserve Bank of India's swap facility was introduced. The response has been robust, with State Bank of India (SBI) emerging as the frontrunner among lenders, according to data reviewed by Fortune India.

The deposits have poured in over a relatively short window, reflecting strong confidence among NRIs in the Indian banking system. The RBI's swap facility, which allows banks to swap fresh FCNR (B) deposits into rupees at a concessional rate, was designed to incentivise such inflows.

Why the swap facility matters

The central bank's mechanism effectively lowers the cost for banks to raise dollar-denominated deposits from NRIs. In return, banks can swap those dollars into rupees at a fixed rate, removing the currency risk from their books. This makes FCNR (B) deposits an attractive funding source.

For the banking system, the inflows provide a stable, long-term source of foreign currency. For the RBI, they help shore up India's forex reserves and ease pressure on the rupee, which has faced periodic volatility amid global headwinds.

SBI leads the pack

State Bank of India has mobilised the largest chunk of these deposits, leveraging its vast branch network and strong NRI relationships. Other public and private sector banks have also participated, but SBI's dominant share underscores its reach among the Indian diaspora.

Bankers say the response was quicker than initially expected. The concessional swap rate, coupled with competitive deposit rates offered by banks, made the FCNR (B) route particularly appealing for NRIs looking for safer yields.

What it means for the rupee and reserves

The surge in FCNR (B) deposits adds to India's foreign exchange buffer, which has seen steady accretion in recent months. Analysts note that such inflows reduce the need for the RBI to intervene directly in the currency market, giving it more room to manage volatility.

The deposits also help bridge the current account deficit, which has been a concern for policymakers. By bringing in dollars from overseas Indians, banks are effectively funding a portion of India's external financing requirement without adding to external commercial borrowings.

Banking sector implications

For banks, the FCNR (B) inflows offer a low-cost, long-tenor funding source. They also diversify the deposit base, reducing reliance on wholesale funding. The swap facility, however, comes with conditions — banks must use the swapped rupees for fresh rupee lending, ensuring the funds are channelled into productive sectors.

Some lenders have already begun deploying these funds into infrastructure and working capital loans, according to industry sources. The tenure of these deposits typically ranges from one to five years, providing banks with a stable liability profile.

Watch out for

The RBI has kept the swap facility open for a limited period, with the window scheduled to close later this year. Banks are likely to continue marketing FCNR (B) products aggressively until then, though the pace of inflows may taper as the deadline nears. The full impact on forex reserves will become clearer in the coming months as the central bank releases its next set of data.