RBI expects strong FCNR (B) inflows, rules out early closure of window | Finance News
The Reserve Bank of India (RBI) expects healthy inflows through Foreign Currency Non-Resident (Bank) [FCNR(B)] deposits to continue, with mobilisation remaining robust so far, and is not considering any proposal to prematurely close the concessional window, which is scheduled to end on September 30, Governor Sanjay Malhotra said at the post-monetary policy press conference on Wednesday.
He clarified that the central bank does not have a target for mobilisation under its concessional swap window.
According to the latest data released by the RBI, banks had mobilised nearly $41 billion in foreign exchange inflows as of July 31 under the concessional swap window. Of the total inflows, $36.7 billion came through FCNR(B) deposits, $2.57 billion through overseas foreign currency borrowings (OFCBs) and $1.5 billion through external commercial borrowings (ECBs).
“We have got robust flows. We do hope to get healthy flows going forward. But there is no proposal under consideration to close the scheme prematurely,” Malhotra said, adding that, as of now, FCNR(B) mobilisation has ticked all the boxes for the RBI.
The scheme became effective on June 8 and will remain in force until September 30, 2026.
He clarified that even before the flows under the RBI’s concessional swap window started coming, India’s external position was quite comfortable. However, the flows have certainly helped further strengthen the external position, including the balance of payments.
According to government data, net inflows into FCNR(B) deposits as of July 30 stood at $28 billion, with foreign banks mobilising $8.37 billion, private sector banks garnering $10.73 billion and public sector banks mobilising $8.84 billion. Small finance banks and cooperative banks together accounted for around $50 million of incremental deposits.
Among individual lenders, HSBC emerged as the largest mobiliser, with FCNR(B) deposits rising by $6.14 billion during the period. State Bank of India (SBI) followed with $4.12 billion, while ICICI Bank mobilised $3.70 billion. Other major contributors included Standard Chartered Bank ($1.86 billion), Kotak Mahindra Bank ($1.66 billion), Axis Bank ($1.59 billion) and HDFC Bank ($1.41 billion).
Malhotra also highlighted that because of the strong inflows, domestic liquidity in the system may peak in the second quarter (Q2) around September, but would remain in surplus only for a short period before being absorbed by the normal needs of the economy.
“The liquidity may be in surplus for a very short term. It may peak in Q2 around September, and going forward, it should get absorbed because of our normal needs of the economy through increase in currency in circulation, higher requirements for reserves because of deposit growth. We also have some forward positions, which are getting matured. So, overall, it will help, but it is not something that is extraordinarily high,” Malhotra said.
“This, we think, implies that the RBI is not in a rush to use permanent and blunt liquidity-draining instruments like OMO sales and CRR hikes,” HSBC said in a note.
The robust inflows through the RBI’s concessional swap window have raised expectations that the eventual mobilisation may be in the range of $80 billion. Last month, SBI Research said FCNR(B) deposits could reach $65-70 billion by the close of the scheme on September 30, revising its earlier estimate of $40-45 billion. Including ECB and OFCB inflows, the total is expected to reach $80-85 billion, it said.
