FCNR(B) inflows cross $100 billion, beat RBI’s $80-billion estimate: Report | Finance News
Capital inflows through the Foreign Currency Non-Resident (Bank), or FCNR(B), deposit scheme crossed the $100-billion mark by the August 31 deadline, according to a Financial Times report.
Banks get more time for contracted FCNR(B) deposits
The FCNR(B) window closed on Monday. However, banks can use the RBI’s swap facility for deposits that had already been contracted until September 11.
The swap arrangements have a maturity period of three to five years. Most of the funds raised under the facility came through deposits with a five-year maturity.
The total inflows have significantly exceeded the earlier estimate of $80 billion across FCNR(B), ECB and OFCB routes. The strong response also supported the RBI’s decision to close the FCNR(B) window a month earlier than the original September 30 deadline.
ECB, OFCB windows remain open
While the FCNR(B) facility has closed, the ECB and OFCB windows will remain available until December 31, 2026.
The RBI operationalised the special swap facility on June 8, while FCNR(B) inflows started on June 23.
RBI data available until August 21 showed that the three routes had attracted $72.85 billion. Of this, FCNR(B) deposits accounted for $65.4 billion, OFCBs for $4.86 billion and ECBs for $2.59 billion.
A Financial Express report on August 10 had said the RBI was considering an early closure of the FCNR(B) window because of the stronger-than-expected response. The scheme offered attractive, tax-free returns on dollar-denominated deposits made by non-resident Indians.
RBI calls early closure a calibrated move
After the decision to close the window early, RBI Governor Sanjay Malhotra told the Financial Times that the move was a carefully planned response to changing market conditions. He said the decision was “well-thought-out, calibrated, prudent and data-driven”.
The large FCNR(B) inflows are expected to strengthen India’s balance of payments in the current financial year. This comes even as the country’s foreign exchange reserves declined by about $8 billion during the April-June quarter. Estimates indicate that the capital account surplus could exceed $65 billion this financial year. This would mark a reversal from the deficits recorded in the previous two financial years, the news report said.
Malhotra had also pointed to the rising cost of managing additional dollar inflows. According to him, the benefit from each additional dollar being swapped declines, while the cost of sterilising the funds increases as the RBI has to manage the liquidity for a longer period, the news report said.
