When your deposit-attraction scheme works too well, you end up with a different problem entirely. That is roughly where the Reserve Bank of India finds itself right now, deploying short-term currency swaps to pull excess cash back out of a banking system it inadvertently flooded with rupee liquidity.
The RBI launched a facility on June 8, 2026, designed to attract foreign-currency non-resident deposits, known as FCNR(B) deposits, alongside external commercial borrowings. The goal was to bolster India’s foreign exchange reserves and provide support for the rupee during a period of capital outflows. The initial target was around $80 billion in inflows. What arrived was somewhere between $128 billion and $136 billion.
How a successful scheme created a new headache
The mechanics are worth understanding. When non-resident Indians and foreign depositors convert dollars into rupees to park money in these accounts, those rupees land in the domestic banking system. Do that at scale and the system suddenly has more liquidity than it knows what to do with.
By September 2026, estimates of the surplus rupee liquidity in India’s banking system ranged between 9.7 trillion and 15 trillion rupees. The RBI is targeting a drain of roughly 7 trillion rupees using a combination of tools, including variable-rate reverse repos, or VRRRs. The swap facility was so oversubscribed that the RBI closed it early, on August 31, 2026, before its originally scheduled end date.
