On August 14 the Reserve Bank of India (RBI) announced it would shut the foreign currency non‑resident bank deposit (FCNR‑B) facility earlier than the planned September 30 deadline. The decision moved the swap deadline to August 31. At that time India had attracted $56.8 billion in inflows, of which $52.3 billion came from FCNR deposits.
A week earlier, RBI Governor Sanjay Malhotra said at a post‑policy briefing that the bank had no intention of closing the FCNR‑B window prematurely. The sudden change surprised market participants.
Experts point to rising carrying costs as the main driver. A treasury head from a leading private bank said, "Other than the cost implication, I don’t see any major compelling reason for an earlier‑than‑anticipated closure."
In June, the RBI introduced measures to support FCNR‑B deposits, including hedging cost relief for three‑ and five‑year terms and removal of the interest ceiling. Banks responded by raising rates to as high as 7.8 percent. SBI Research estimated that keeping the window open until September could bring up to $70 billion in inflows.
A former central banker explained that the rupee’s steady depreciation pressured the RBI. He noted that the USD/INR pair had stayed flat but with a bias toward falling, prompting RBI to sell dollars to curb the decline. The rupee moved from 95.39 on June 5 to 95.45 on August 14, briefly touching 94.30 in mid‑July before losing momentum.
Weakening crude prices and geopolitical uncertainty have further pressured the rupee. The forwards market was not conducive to effective hedging, so the RBI may have chosen to end the facility early, the former banker added.
Treasury heads say the closure is a fine‑tuning move rather than a policy reversal. The strong uptake of FCNR‑B deposits suggests the mobilisation goal was largely met, and the RBI is now concentrating on managing the resulting liquidity and FX impact. Current surplus liquidity stands at about Rs 3 lakh crore and may rise as foreign inflows convert to rupee liquidity.