RBI’s NRI Deposit Window Shows Confidence Can Be Bought—But Only for a While

The numbers are hard to ignore. Nearly $17.4 billion has flowed into FCNR(B) deposits, while Indian companies have raised another $3.3 billion through external commercial borrowings and overseas foreign currency borrowings. For a scheme that was meant to shore up India’s foreign exchange position, the response has been more than encouraging.

But the real story lies beyond the numbers.The RBI has shown, once again, that it knows how to attract dollars when the need arises. By taking over the hedging cost on FCNR(B) deposits, it removed the biggest hurdle for banks. The response from overseas Indians was almost immediate.There is a sense of déjà vu here.

In 2013, when the rupee was under severe pressure during the “taper tantrum”, then RBI Governor Raghuram Rajan rolled out a similar FCNR(B) window. That move helped restore confidence and rebuild India’s foreign exchange reserves at a difficult moment. More than a decade later, the formula appears to be working again.The backdrop is different this time.

India is not facing a currency crisis, but the global environment remains uncertain. Capital flows can change direction overnight, geopolitical tensions refuse to fade and central banks across the world continue to keep markets guessing. In such times, every additional dollar in the reserves strengthens the RBI’s hand.Yet, it would be a mistake to celebrate these inflows as though they are permanent additions to India’s external strength.

FCNR(B) deposits are, after all, borrowed money. They come with a maturity date. They either have to be rolled over or repaid. The dollars arriving today will eventually have to find their way back unless fresh money replaces them. That is the nature of the instrument.The subsidy itself also deserves attention.

The RBI is paying the hedging cost to make the scheme attractive. That may be justified in exceptional circumstances, but it is not something that can continue indefinitely. Incentives are useful when markets need a nudge. They are less useful when they become an expectation.There is another, more reassuring signal in the RBI’s data. Indian companies have continued to tap overseas markets through ECBs and OFCBs.

Unlike subsidised deposits, these borrowings suggest that lenders abroad remain willing to back Indian businesses despite a volatile global environment. That speaks to confidence in corporate India as much as confidence in the economy.The RBI deserves credit for acting early rather than waiting for pressure to build. Central banking is often about creating room to manoeuvre before markets begin asking uncomfortable questions.

On that count, the special deposit window has done its job.But no central bank can subsidise confidence forever.The real test will come when these deposits mature and the incentives are withdrawn.

If the dollars stay because India’s economic fundamentals remain strong, the RBI’s intervention will be remembered as a timely success. If they leave with the subsidy, it will simply underline an old truth: money attracted by incentives rarely develops permanent roots.