RBI: Attracting foreign funds while shoring up the rupee
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The Reserve Bank of India’s Foreign Currency Non-Resident (Bank) or FCNR(B) Deposit Scheme 2026 represents a familiar yet timely policy response to external sector pressures. Designed to attract foreign currency deposits from NRIs, the scheme aims to strengthen liquidity, support forex reserves, and reinforce confidence in the Indian economy amid global uncertainties affecting capital flows and currency markets. The scheme has already raised $36 billion by end of July.FCNR(B) deposits allow NRIs to place fixed-term deposits in foreign currencies while remaining insulated from exchange-rate fluctuations. Under the current scheme, banks are permitted regulatory concessions, including exemptions from Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR) requirements on eligible deposits. Also, there is no requirement of Priority Sector Lending (PSL) for the advances generated against these deposits. These incentives improve the attractiveness of the scheme for investors and banks.2013 experienceThe obvious comparison is with the highly successful FCNR(B) mobilisation programme of 2013, launched during the “taper tantrum” when emerging markets faced severe capital outflows. The impact then was immediate and dramatic. Following the scheme’s announcement, the rupee appreciated by nearly 10-12 per cent as market confidence improved and substantial foreign currency inflows strengthened India’s external position.The current experience has been markedly different. Despite expectations of significant inflows, potentially in the range of $70–80 billion, the rupee has largely remained range-bound at around ₹95-96 per US dollar.This suggests that while the scheme is helping stabilise sentiment, it has not triggered the sharp currency appreciation witnessed in 2013. Part of the explanation lies in the global backdrop. Persistent geopolitical tensions, uncertainty surrounding US trade policy, foreign investment flows, and broader risk aversion have limited the scheme’s positive currency impact.Another important distinction concerns foreign exchange reserves. Though the scheme may attract sizeable inflows, the reserve increase might not be as visible as many anticipate. The RBI has accumulated a significant stock of forward foreign exchange sales, estimated at close to $100 billion. As these contracts mature, a substantial portion of the incoming foreign currency may be required to meet those obligations. So, even if deposit mobilisation succeeds, headline reserve accumulation might stay modest.Attraction for banksFor banks, however, the economics remains attractive. At 5.5-6.5 per cent for most banks, the cost is lower than the marginal cost of domestic deposits. In addition, exemptions from CRR and SLR requirements further reduce the effective cost of funds, while access to stable foreign currency liabilities enhances liquidity. Investors also benefit from competitive foreign currency returns and protection against rupee depreciation, making the scheme attractive for NRI savings.The broader policy debate centres on whether India could have achieved similar objectives more efficiently through the issuance of a sovereign foreign-currency bond. Such an issuance would have come at roughly 100 bps lower than the FCNR(B) route. Moreover, a Government of India dollar bond would establish a sovereign dollar yield curve, creating a benchmark for external commercial borrowing across the economy and improving price discovery in international debt markets.Yet the RBI and the government have maintained their long-standing conservative stance against sovereign foreign-currency borrowing. India’s macroeconomic fundamentals remain strong, but policymakers are hesitant to expose the sovereign balance sheet directly to foreign-currency liabilities. The unresolved West Asian conflict, uncertain global capital flows, and continuing tariff-related concerns may have reinforced this cautious approach.As a result, the FCNR(B) scheme represents a middle path — one that mobilises foreign currency without formally introducing sovereign external debt. While it may not produce the dramatic currency gains or reserve accumulation seen in 2013, it remains a prudent tool for external stability.The writer is Chief Rating Officer & Executive Director at CareEdge Ratings. Views expressed are personalPublished on August 11, 2026
