Robust forex buffers give RBI room to avoid special scheme.
May 30, 2026
Robust forex buffers give RBI room to avoid special scheme.
Costly NRI deposits
FCNR(B) deposit rates offered by public sector banks currently range between 5.5% and 6%. Any move to mobilise dollar deposits from NRIs would therefore be extremely costly for Indian banks and would likely require substantial subsidisation by the Reserve Bank of India (RBI).
In 2013, the RBI offered domestic banks a highly subsidised hedging window and mobilised around $30 billion within weeks, helping stabilise the rupee almost immediately.
At that time, India’s forex reserves stood at around $275 billion, equivalent to 6–7 months of import cover. Reserves are now about $681 billion, providing roughly 11 months of import cover. This gives India greater flexibility to manage the current situation by supplying dollars from reserves rather than reopening an FCNR(B) mobilisation window.
“When the economy is strong, and financing is not yet a major issue, a special NRI deposit scheme might send the wrong signal to investors,” an official said.
FCNR(B) inflows are also temporary liabilities, and large future maturities can create rollover risks and renewed pressure on both reserves and the rupee, as seen in the previous round.
Panagariya flags costs
Commenting recently on dollar-denominated bonds and high-interest NRI dollar deposits, 16th Finance Commission chairman Arvind Panagariya said: “These are costly instruments that pay significantly higher interest than the rate India earns on its own foreign-currency reserves. It is largely a transfer to rich NRIs.”
FCNR(B) deposit rates offered by public sector banks currently range between 5.5% and 6%. Any move to mobilise dollar deposits from NRIs would therefore be extremely costly for Indian banks and would likely require substantial subsidisation by the Reserve Bank of India (RBI).
In 2013, the RBI offered domestic banks a highly subsidised hedging window and mobilised around $30 billion within weeks, helping stabilise the rupee almost immediately.
At that time, India’s forex reserves stood at around $275 billion, equivalent to 6–7 months of import cover. Reserves are now about $681 billion, providing roughly 11 months of import cover. This gives India greater flexibility to manage the current situation by supplying dollars from reserves rather than reopening an FCNR(B) mobilisation window.
“When the economy is strong, and financing is not yet a major issue, a special NRI deposit scheme might send the wrong signal to investors,” an official said.
FCNR(B) inflows are also temporary liabilities, and large future maturities can create rollover risks and renewed pressure on both reserves and the rupee, as seen in the previous round.
Panagariya flags costs
Commenting recently on dollar-denominated bonds and high-interest NRI dollar deposits, 16th Finance Commission chairman Arvind Panagariya said: “These are costly instruments that pay significantly higher interest than the rate India earns on its own foreign-currency reserves. It is largely a transfer to rich NRIs.”