The Reserve Bank of India announced a new foreign currency deposit scheme on Friday to attract significant international capital into the country.
This move is designed to stabilize the Indian economy by strengthening the national currency and supporting bond markets. By relaxing rules for Foreign Currency Non-Resident (Bank) accounts, the central bank aims to improve overall liquidity conditions and bolster India's external financial position.
According to Reuters, the Indian banking sector—including institutions such as Punjab National Bank—could raise between $35 billion and $40 billion [2] through these foreign currency deposits. Other estimates suggest total foreign inflows from the combined RBI measures could reach as high as $35 billion to $50 billion [1] over the next year.
To further incentivize these inflows, the RBI has conducted aggressive dollar-rupee swaps. This strategy is intended to make it more attractive for foreign investors to move capital into the Indian market. These interventions have already impacted the market, with foreign exchange hedging costs hitting their lowest levels in two months [3].
Banks are expected to play a central role in implementing the relaxed FCNR(B) rules. The shift allows for a more flexible approach to how foreign currency is held and deposited within the Indian banking system, reducing the barriers that previously deterred large-scale deposits.
The central bank's strategy focuses on a multi-pronged approach to capital management. By combining the new deposit scheme with active swap operations, the RBI is attempting to create a buffer against global economic volatility while ensuring that domestic banks have sufficient foreign currency reserves to operate efficiently.
“The Reserve Bank of India announced a new foreign currency deposit scheme on Friday to attract significant international capital.”
The RBI is proactively managing its foreign exchange reserves to prevent currency devaluation and maintain market stability. By lowering the cost of hedging and easing deposit restrictions, India is positioning itself as a more attractive destination for liquid foreign capital, which reduces the risk of a balance-of-payments crisis and supports long-term infrastructure investment.
