TL;DR

• <h2>RBI’s FCNR(B) Scheme Closes Early After Attracting $100 Billion, Boosts India’s Forex Reserves</h2><p>The Reserve Bank of India (RBI) has successfully concluded its Foreign Currency Non-Resident (Bank) or FCNR(B) scheme a month ahead of schedule, following an overwhelming response that saw it attract over $100 billion in foreign currency deposits from non-resident Indians (NRIs). The scheme, initially expected to draw around $80 billion, significantly bolstered India’s foreign exchange reserves to a record high of $729.3 billion.</p><p>Launched in June, the FCNR(B) window was designed to attract foreign currency investment at a critical time. India’s forex reserves and the Indian Rupee (INR) had been under considerable pressure due to the ongoing US-Iran war, volatility in crude prices, and rising global energy costs. Earlier reports from The Financial Times indicated that India had shed $46 billion in reserves since February, with total forex standing at $682 billion as of July 24, and the INR weakening 6% against the US Dollar.</p><p>The FCNR(B) scheme allows NRIs to deposit their overseas earnings in foreign currencies like US dollars, protecting them from potential losses due to INR fluctuations. To make these deposits more attractive, the central bank introduced a concessional swap facility in June, absorbing forex hedging costs for fresh FCNR(B) deposits with tenures of three to five years. This incentive proved highly effective, reversing a trend where FCNR(B) inflows had sharply declined from over $7 billion in FY25 to just $946 million in FY26.</p><p>By August 31, the scheme had surpassed the $100 billion mark, leading the RBI to close the window a month earlier than its original September 30 deadline. This decision was reportedly driven by concerns over potential reversal risks associated with excessive inflows. Banks, however, will be permitted to utilize the swap facility for deposits already contracted until September 11.</p><p>The substantial inflow has provided the RBI with increased firepower to intervene in the currency market and support the Indian Rupee. Following the surge in reserves, the rupee gained 0.4% on Tuesday, reaching 94.7988 per dollar, its strongest level since July 1. This intervention capability is crucial as higher oil prices and geopolitical tensions continue to exert pressure on India’s balance of payments. The replenished reserves are also expected to comfortably finance India’s current-account deficit this financial year.</p><p>This is not the first instance of the RBI leveraging diaspora flows during economic vulnerabilities. Similar measures were implemented in 1991 during a severe balance-of-payments crisis and again in 2013, when India raised approximately $34 billion from its diaspora to counter capital outflows triggered by the US Federal Reserve’s "taper tantrum."</p>