FCNR(B) deposits push forex reserves to all-time high of $729 billion in August

FCNR(B) deposits push forex reserves to all-time high of $729 billion in August Indicates greater ability of RBI to defend the rupee.

Key points

• 5 min read New Delhi Updated: Aug 29, 2026 04: 12 AM IST.
• While $4.86 billion has come in under the window for Overseas Foreign Currency Borrowings, $2.59 billion has come in as External Commercial Borrowings.
• On Friday, the rupee concluded at 95.39 per dollar, little change from its June 4 level of 95.79.
• As confirmed originally, meanwhile, the swap facilities for Overseas Foreign Currency Borrowings and External Commercial Borrowings will remain open till December 31.
• According to data published by the RBI on Friday, forex reserves rose by $12.42 billion in the week concluded August 21.

Building forex reserves is an significant signal to foreign investors. This person have been pulling capital out of Indian stock markets in droves: $19 billion in 2025 and $24 billion in the first five months of 2026. (File).

THE RBI's concessional swap window for Foreign Currency Non-Resident (Bank) deposits has supported propel India's foreign exchange reserves to a record high of $729.33 billion as on August 21. The FCNR (B) window has been operational since June 8.

Meanwhile, the previous all-time high was $728.49 billion as on February 27, just a day before the US and Israel attacked Iran, kickstarting the West Asia conflict that resulted in sharply higher global energy rates after the closure of the Strait of Hormuz.

Since almost 85 per cent of India's crude oil needs are met through imports, the conflict and the resultant rise in rates had pushed up the country's import bill, exerting further pressure on the rupee. The rupee was already under intense stress due to sizeable foreign fund outflows from domestic financial markets.

RBI's forex swap window draws $72.85 billion inflows till August 21.

According to data published by the RBI on Friday, forex reserves rose by $12.42 billion in the week concluded August 21. Last week, the RBI had remarked that FCNR (B) deposits of $65.4 billion had come in as of August 21 since the window opened in June. At the end of May, the total amount of FCNR(B) deposits outstanding was $34.04 billion.

Under this FCNR (B) scheme, the central bank bears the full exchange rate risk of the NRI bank deposits – funds is deposited in the foreign currency and not in rupees. This cushion allowed banks to offer interest rates as high as 7.4 per cent. NRIs have additionally poured in capital into these deposits by taking advantage of the leverage offered by banks. It lets them create returns of as much as 15 per cent, by borrowing capital at lower interest rates and then depositing it at the high FCNR(B) deposit rates on offer.

Higher forex reserves are indicative of the RBI having greater ability to defend the rupee. A continuously weakening rupee makes it less attractive for foreign investors to put funds in India as their returns take a hit once they convert their investment into their home country currency, such as the US dollar.

With net Foreign Direct Investments (FDI) additionally fragile on account of rising overseas investments of Indian firms and foreign investors taking back profits produced on past investments, India's capital flows situation has been further complicated by the rise of interest rates in developed economies.

Higher interest rates in countries such as the US makes India a less attractive destination for global investors.

To pull funds, the administration and the RBI confirmed a series of measures on June 5. This included the aforementioned concessional swap facility as well as the removal of capital gains and withholding taxes on foreign portfolio investors' investments in administration securities.

When the RBI had first introduced a swap facility for FCNR(B) deposits, while funds has flowed in the last three months, the rupee has not appreciated as was the case in late 2013.

Contrast this with 2013: from 67.6-per-dollar on September 3, 2014, the day before the incoming RBI Governor Raghuram Rajan confirmed the FCNR(B) swap window, the rupee rose 10.3% to 61.3-per-dollar in the first 40 days of the scheme.

Such has been the success of the FCNR(B) scheme in particular – the Ministry of Finance remarked in an official note earlier this week that capital had flowed in faster than projected – that the RBI on August 14 remarked the swap window would close on August 31, one month earlier than the initially-announced deadline of September 30.

Confirmed on June 5, the three concessional swap windows have seen $72.85 billion flow in from June 8 to August 21, with the FCNR(B) deposits doing much of the heavy lifting. While $4.86 billion has come in under the window for Overseas Foreign Currency Borrowings, $2.59 billion has come in as External Commercial Borrowings.

In its statement on Monday, the finance ministry remarked the FCNR(B) swap window had "achieved its objective ahead of schedule".

For now, FCNR(B) deposits push forex reserves to all-time high of $729 billion in remains the part of the story worth watching, and further updates are likely as more details are confirmed.