FCNR(B) Deposits Drive India's Forex Reserves to Record $729.33 Billion
India’s foreign exchange reserves reached a historic high of $729.33 billion as of August 21, propelled by the Reserve Bank of India’s (RBI) concessional swap window for Foreign Currency Non-Resident (Bank) deposits. The FCNR(B) window has been operational since June 8.
The latest figure surpasses the previous all-time high of $728.49 billion recorded on February 27. That peak occurred just a day before the US and Israel attacked Iran, initiating a conflict in West Asia that led to the closure of the Strait of Hormuz and subsequently drove up global energy prices.
Because India imports approximately 85 percent of its crude oil requirements, the conflict and resulting price hikes inflated the nation's import bill, placing additional pressure on the rupee. The domestic currency was already experiencing significant stress due to large outflows of foreign funds from Indian financial markets.
FCNR(B) Scheme Inflows and Mechanics
According to data released by the RBI, foreign exchange reserves increased by $12.42 billion during the week ended August 21. The central bank recently reported that FCNR(B) deposits worth $65.4 billion had been secured between the opening of the window in June and August 21. At the end of May, the total outstanding FCNR(B) deposits stood at $34.04 billion.
Under the FCNR(B) scheme, the RBI bears the entire exchange rate risk for these non-resident Indian (NRI) bank deposits, which are held in foreign currency rather than rupees. This risk mitigation enabled commercial banks to offer interest rates as high as 7.4 percent. NRIs leveraged these high rates by borrowing funds at lower interest rates abroad to deposit them under the scheme, securing returns of up to 15 percent.
Accumulating foreign exchange reserves provides a critical signal to foreign investors, who have withdrawn substantial capital from Indian equity markets. Foreign portfolio investors pulled out $19 billion in 2025 and $24 billion during the first five months of 2026. This capital flight contributed to the rupee falling near the 97-per-dollar mark in mid-May, representing an 8.1 percent decline compared to the previous year.
Impact on the Rupee and Capital Flows
Higher foreign exchange reserves enhance the RBI's capacity to defend the rupee. A depreciating currency reduces the attractiveness of Indian assets for foreign investors, as their investment returns diminish when converted back into home currencies like the US dollar.
India's capital flows have faced additional complications from rising interest rates in developed economies, which make domestic markets less competitive. Concurrently, net Foreign Direct Investment (FDI) has remained weak due to increased overseas investments by Indian firms and foreign investors repatriating profits from past investments.
To attract foreign capital, the government and the RBI introduced several measures on June 5. Alongside the concessional swap facility, these actions included removing capital gains and withholding taxes on foreign portfolio investments in government securities.
Comparison with the 2013 Swap Window
Despite the substantial inflows over the last three months, the rupee has not experienced the appreciation seen during a similar intervention in late 2013. On August 21, the rupee closed at 95.39 per dollar, showing little change from its June 4 level of 95.79.
In contrast, when the RBI introduced its first FCNR(B) swap facility in 2013, the rupee rose 10.3 percent from 67.6 per dollar on September 3, 2014—the day before incoming RBI Governor Raghuram Rajan announced the window—to 61.3 per dollar within the first 40 days of the scheme.
The Ministry of Finance stated earlier this week that funds had accumulated faster than anticipated under the current scheme. Consequently, the RBI announced on August 14 that the FCNR(B) swap window would close early on August 31, ahead of its original September 30 deadline. The ministry noted that the window had "achieved its objective ahead of schedule."
Between June 8 and August 21, the three concessional swap windows announced on June 5 generated a total of $72.85 billion in inflows. While the FCNR(B) window brought in the majority of these funds, the swap facility for Overseas Foreign Currency Borrowings attracted $4.86 billion, and External Commercial Borrowings brought in $2.59 billion. These latter two facilities will remain open until the originally scheduled deadline of December 31.
