FCNR-B – RBI Deposit Scheme Sees Robust NRI Response, Boosting Rupee Outlook
FCNR-B – The Reserve Bank of India’s special Foreign Currency Non-Resident Bank (FCNR-B) deposit scheme has attracted substantial interest from non-resident Indians (NRIs), with inflows already reaching around USD 41 billion. A recent report by Jefferies estimates that the total amount mobilised could climb to between USD 80 billion and USD 100 billion before the facility closes on September 30. The encouraging response is expected to strengthen India’s external position and provide additional support to the rupee after recent currency volatility.
Strong Response to RBI’s Temporary Deposit Window
The FCNR-B scheme was introduced by the RBI on June 5 as a temporary measure to encourage fresh foreign currency deposits from NRIs. Alongside the deposits, the central bank also announced concessional swap arrangements for participating banks, making the scheme more attractive. According to Jefferies, the initiative has surpassed initial expectations, with inflows continuing to build steadily as the deadline approaches.
The report projects that the amount collected over the next two months could nearly double, reflecting sustained participation from overseas Indian investors seeking stable investment opportunities.
Expected Support for the Indian Rupee
Jefferies believes the strong inflow of foreign currency is likely to improve the rupee’s stability after a period of depreciation. The report noted that the domestic currency had touched a low of 96.96 against the US dollar in May before recovering to around 95.17 during the assessment period.
Higher foreign currency reserves generated through the scheme can improve liquidity and strengthen confidence in the Indian financial system, helping reduce pressure on the exchange rate if global market volatility increases.
Similar Strategy Used During Earlier Currency Stress
The report pointed out that this is not the first time India has relied on the FCNR-B route to strengthen the domestic currency. Similar initiatives were launched in 1993 and again in 2013 when the rupee came under pressure from external economic conditions.
The current programme follows the same approach by attracting overseas deposits while improving the country’s foreign exchange position without imposing additional pressure on domestic financial markets.
NRIs Showing Significant Participation
Jefferies said market feedback indicates that many NRIs have actively utilised the scheme. According to the report, some investors have reportedly used financial leverage to enhance potential returns while considering the investment relatively secure because of the sovereign-backed framework supporting the programme.
The report suggested that this structure has increased the appeal of the scheme among eligible depositors looking for opportunities linked to India’s financial markets.
Government Bond Reforms Add to Capital Inflows
Apart from the FCNR-B initiative, Jefferies highlighted another policy change that has strengthened overseas investment. In early June, the government removed tax on interest income earned by foreign investors from Indian government bonds, making these securities more attractive to international funds.
Since the policy came into effect, the report estimates net foreign inflows of nearly USD 8.7 billion into government bonds. This additional investment has further improved India’s capital inflow outlook alongside the FCNR-B deposits.
Domestic Economic Indicators Remain Positive
The report also pointed to healthy domestic economic activity. Bank credit growth has accelerated to around 17-18 percent year-on-year, marking the strongest expansion seen in more than a decade. Corporate lending has grown by approximately 20 percent, while loans to the agriculture sector have increased by 17 percent and retail lending has expanded by about 16 percent.
Demand in sectors such as automobiles and real estate has also remained resilient, indicating continued momentum across key parts of the economy.
Overall, Jefferies believes the combination of strong FCNR-B inflows, increased foreign investment in government bonds and sustained domestic credit growth provides encouraging signs for India’s economy. These developments are expected to improve capital availability, reinforce investor confidence and contribute to greater stability for the rupee in the months ahead.