The Reserve Bank of India will close the Foreign Currency Non-Resident (FCNR-B) deposit window on Aug. 31, one month ahead of schedule.
The early closure comes as the central bank manages an unexpected surge in foreign currency inflows that could impact liquidity and currency stability.
Inflows through the FCNR-B facility grew, reaching $52.3 billion as of Friday [1]. Other reports previously placed the figure at $32 billion [2, 3] or $36.7 billion within a 52-day period [4]. The RBI decided to accelerate the timeline for the window's closure to maintain control over the banking system's liquidity.
Total mobilization through the broader swap facility reached $40.8 billion [4]. While some projections suggested total inflows could eventually hit between $80 billion and $85 billion [6], the current volume prompted the regulatory shift.
Bank officials said the early termination is unlikely to negatively affect overall bank liquidity [5]. The move follows a period where the RBI viewed the rupee as undervalued while managing the high volume of FCNR-B deposits [3].
The FCNR-B window was designed to attract deposits from non-resident Indians, but the scale of the response surpassed the central bank's initial expectations [1, 5]. By closing the window on Aug. 31, 2024, the RBI aims to stabilize the flow of foreign currency into the domestic banking sector [1].
“The Reserve Bank of India will close the Foreign Currency Non-Resident (FCNR-B) deposit window on Aug. 31.”
The RBI's decision to truncate the FCNR-B window reflects a balancing act between attracting foreign capital and preventing currency volatility. While high inflows bolster foreign exchange reserves, an excessive surge can lead to liquidity imbalances within the banking system. By closing the window early, the RBI is prioritizing macroeconomic stability over the continued accumulation of non-resident deposits.
