New Delhi : Collections from a scheme launched by the Reserve Bank of India (RBI) to attract foreign currency investment by non-resident Indians (NRIs) has touched $100 billion, and such has been its success that the government has decided to wrap it up a month earlier than planned. The RBI launched the Foreign Currency Non-Resident (Bank) or FCNR(B) in June and by August 31 it had topped the $100-billion mark, reported Bloomberg, citing a report by The Financial Express.
The RBI shut the FCNR(B) window a month ahead of its original September 30 deadline, amid concerns over the reversal risks that could arise from excessive inflows. “While the FCNR(B) window closed on Monday, banks will be allowed to avail of the swap facility for deposits already contracted until September 11,” reported The Financial Express. A shored-up forex reserves also gives the RBI ammunition to intervene in the currency market and support the Indian Rupee (INR), which continues to face pressure from elevated oil prices.
Cut to September, things have changed. Thanks to the RBI’s programmes like the FCNR(B), India’s forex reserves now stand at $729.3 billion. The replenished reserves have also allowed the RBI to strengthen the rupee. The currency gained as much as 0.4% on Tuesday to 94.7988 per dollar, set for the strongest level since July 1, reported Bloomberg. The Foreign Currency Non-Resident (Bank) or FCNR(B) is a scheme that allows NRIs to deposit their overseas earnings in India in foreign currencies like US dollars, rather than converting them into INR.
To reverse the trend, the central bank had in June announced a concessional swap facility until September 30, 2026, which saw the RBI absorb forex hedging costs for fresh FCNR(B) deposits, that are normally borne by banks, with tenures of three to five years. The scheme generated a much stronger response than anticipated. In early August, the RBI had reported that $40.8 billion had come into the country since June. Capital inflows via the FNCR(B) crossed the $100 billion mark by August 31, The Financial Express reported, citing official sources.
The measure was revived in 2013, when India raised around $34 billion from its diaspora to stem capital outflows triggered by the US Federal Reserve’s “taper tantrum”. The surge in FCNR(B) inflows has significantly strengthened India’s forex reserves, which reached a record $729.3 billion as of August 21, reported news agency Reuters. For context, the Financial Times had reported back in August that the same reserves had stood at $682 billion as of July 24.
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