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The Reserve Bank of India's (RBI) decision to prematurely close its special FCNR(B) deposit mobilisation window is unlikely to materially undermine the liquidity and funding benefits already generated for banks, with the scheme having mobilised substantially higher inflows than initially expected, according to a report by CareEdge Ratings.
The RBI has advanced the deadline for banks to mobilise fresh FCNR(B) deposits to August 31, 2026, from September 30, following strong foreign currency inflows. As of August 13, FCNR(B) deposits had mobilised USD 52.3 billion, while total inflows through the broader facilities stood at about USD 56.8 billion. CareEdge said the scheme should primarily be viewed as a liquidity and financial-stability measure rather than a tool for triggering sharp rupee appreciation or a significant increase in reported foreign exchange reserves. The report had earlier estimated FCNR(B) mobilisation could reach USD 60-80 billion, with such inflows providing banks stable medium-term funding and easing pressure from credit growth outpacing deposit mobilisation. The Reserve Bank of India (RBI) decided to prematurely close the deposit mobilisation window under its special forex swap facility for Foreign Currency Non-Resident (Bank) [FCNR(B)] deposits, bringing forward the deadline for banks to mobilise such deposits to August 31, 2026. The early closure could limit the additional inflows that banks would have attracted through September, but the substantial mobilisation already achieved is expected to continue supporting bank liquidity and liability profiles. CareEdge noted that FCNR(B) deposits can provide funding at a lower cost than comparable domestic deposits. A three-year FCNR(B) deposit priced at around 6.5% compares with domestic term deposit rates of about 7.45%, while the scheme's regulatory exemptions further reduce the effective funding burden. The inflows are also expected to provide banks greater balance-sheet flexibility and help address elevated credit-deposit ratios. The system-wide credit-deposit ratio had risen to 82.7% by mid-July 2026 from 71.8% in March 2021, reflecting credit growth consistently outpacing deposit mobilisation. However, CareEdge cautioned that the impact on the rupee may remain limited. Despite sizeable inflows, the rupee had remained broadly range-bound around Rs 95-96 per US dollar, reflecting geopolitical tensions, uncertainty over global trade and capital flows, and elevated risk aversion. The report also said the scheme's eventual impact on banks should remain supplementary rather than structural, with FCNR(B) deposits expected to account for only around 3% of total deposits even under the earlier projected mobilisation levels. CareEdge views the FCNR(B) programme as having already achieved its key objective of strengthening external liquidity and easing banking-system funding pressures, reducing the significance of its early discontinuation. (ANI)
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