Mumbai, July 27: Foreign Currency Non-Resident (Bank) [FCNR(B)] deposits have likely crossed the record $26 billion mobilised during the 2013 special deposit scheme in just about 45 days, with total inflows expected to reach $65-70 billion by the end of the current mobilisation window, according to an SBI research report.

The Reserve Bank of India had reported total foreign currency inflows of about $20.7 billion till July 17, including $17.4 billion through FCNR(B) deposits. Based on the pace of collections since then, the outstanding FCNR(B) deposits are estimated to have already exceeded the amount mobilised during the three-month 2013 scheme.

Total FCNR(B) deposits are projected to rise to $65-70 billion by the end of the scheme, significantly higher than earlier estimates of $40-45 billion. Including Overseas Foreign Currency Borrowings (OFCBs) and External Commercial Borrowings (ECBs), overall inflows could reach $80-85 billion.

Public sector banks are seen driving the mobilisation, helped by strong relationships with high-value customers across overseas markets. A large share of FCNR(B) deposits maturing in August and September is also expected to be renewed under the revised scheme because of higher interest rates, providing an additional boost to inflows.
The report also sought to explain why India’s foreign exchange reserves have not increased in line with the sharp rise in FCNR(B) deposits. Banks swap these deposits with the RBI at different points during the week to obtain rupee liquidity, creating a lag before the inflows are reflected in the central bank’s foreign currency assets.

Foreign currency assets had increased by only $7.6 billion till July 17 despite FCNR(B) inflows of $17.4 billion. This gap is expected to narrow, with foreign currency assets projected to rise by another $10-12 billion during the second half of July.
The continued weakness of the rupee, despite robust capital inflows, remains a concern. The report argued that foreign exchange intervention has not been aggressive enough to stabilise the currency and called for a more decisive approach to prevent further depreciation.

An econometric analysis estimated average daily intervention at around $14 million, a level considered insufficient to arrest currency volatility or reverse the rupee’s decline. By comparison, interventions during the late 1990s were significantly larger despite much smaller foreign exchange reserves.

The report also upgraded the outlook for India’s external sector, projecting a balance of payments surplus of more than $50 billion in FY27, compared with an earlier estimate of a $65-70 billion deficit. The current account deficit is expected to remain contained at 1-1.2% of GDP, supported by strong FCNR(B) inflows, remittances, foreign direct investment and portfolio flows.