MUMBAI — India has mobilized nearly $10 billion in foreign currency deposits under a Reserve Bank of India (RBI) scheme designed to stabilize the rupee, marking the largest single-quarter inflow under the program since its 1993 launch. The funds, raised between September and December 2025 through the Foreign Currency Non-Resident (Bank) or FCNR(B) scheme, have provided critical short-term relief to the rupee, which had depreciated nearly 4% against the U.S. dollar in the first half of the fiscal year. However, economists warn that the inflows—while significant—do not resolve deeper vulnerabilities in India’s external account, leaving the currency exposed to future shocks.
What Happened
Three sources familiar with the matter told Reuters that the $10 billion inflow was secured through the FCNR(B) scheme, which allows non-resident Indians (NRIs) and overseas citizens to deposit foreign currency in Indian banks for fixed terms of one to five years at competitive interest rates. The RBI launched the initiative in September 2025 as the rupee faced downward pressure from a strengthening U.S. dollar and surging global oil prices, which exacerbated India’s import bill and widened its current account deficit.
The deposits represent the highest mobilization under the FCNR(B) scheme in a single quarter, surpassing previous records set during periods of acute currency stress, such as the 2013 “taper tantrum” and the 2022 post-pandemic volatility. While the RBI has not officially confirmed the total, two sources indicated that the central bank is likely to disclose the figures in its upcoming monetary policy report, expected later this month.
Why It Matters
The $10 billion inflow has provided immediate liquidity to India’s foreign exchange market, easing pressure on the rupee and reducing the need for the RBI to dip into its forex reserves to defend the currency. As of December 2025, India’s forex reserves stood at $620 billion, down from a peak of $645 billion in 2024, according to RBI data. The deposits have also helped narrow the gap between India’s import cover and its short-term external debt, which had raised concerns among rating agencies and investors.
However, the reliance on foreign currency deposits—rather than more stable capital flows like foreign direct investment (FDI) or portfolio investments—highlights India’s persistent challenges in attracting long-term capital. While the FCNR(B) scheme has historically been a reliable source of forex inflows during crises, its effectiveness is limited by the temporary nature of the deposits. Unlike FDI, which is invested in productive assets, or portfolio investments, which can be held for extended periods, FCNR(B) deposits are typically withdrawn once they mature, leaving the rupee vulnerable to renewed volatility.
Background and Context
The FCNR(B) scheme was introduced in 1993 to provide NRIs with a secure and tax-efficient way to invest in India while shoring up the country’s forex reserves. The scheme gained prominence during periods of currency stress, such as the 2008 global financial crisis and the 2013 taper tantrum, when the RBI offered higher interest rates to attract deposits. In 2022, the central bank revived the scheme amid post-pandemic capital outflows, raising $4.2 billion in a single quarter.
India’s rupee has been under pressure for much of 2025, driven by a combination of external and domestic factors. The U.S. Federal Reserve’s aggressive monetary tightening, which has strengthened the dollar, has weighed on emerging market currencies, including the rupee. Meanwhile, India’s import dependency—particularly for crude oil, gold, and electronics—has widened its trade deficit, putting further strain on the currency. In the first half of the fiscal year 2025-26, the rupee depreciated by 3.8% against the dollar, according to RBI data, prompting concerns over imported inflation and capital flight.
The RBI’s decision to launch the FCNR(B) drive in September 2025 was part of a broader strategy to stabilize the rupee without depleting forex reserves. The central bank has also intervened in the spot and forward markets to curb excessive volatility, though it has avoided large-scale dollar sales to preserve reserves. In a statement last week, the RBI reiterated its commitment to maintaining “orderly conditions” in the forex market, signaling that it would continue to monitor liquidity closely.
Competing Claims and Uncertainty
While the $10 billion inflow is a significant achievement, analysts are divided on its long-term implications. Some economists argue that the deposits provide a much-needed buffer against external shocks, particularly as global commodity prices remain volatile. Others, however, caution that the inflows are a temporary fix and do not address India’s structural vulnerabilities, such as its high import dependency and relatively low export competitiveness.
A key concern is the sustainability of the inflows. The FCNR(B) scheme typically attracts deposits during periods of high interest rates or currency depreciation, but these inflows can reverse quickly if global risk sentiment improves or if the RBI cuts rates. For instance, after the 2013 taper tantrum, many FCNR(B) deposits were withdrawn once the rupee stabilized, leading to renewed pressure on the currency.
Another point of contention is the cost of the scheme. While the RBI has not disclosed the interest rates offered on the latest FCNR(B) deposits, analysts estimate that they are likely in the range of 5-6%, higher than the rates offered on domestic term deposits. This could weigh on banks’ net interest margins if the deposits are not deployed profitably. Additionally, the RBI’s decision to allow banks to swap these deposits into rupees at a concessional rate—effectively subsidizing the cost—has raised questions about the fiscal implications of the scheme.
What to Watch Next
1. RBI’s Monetary Policy Report: The central bank is expected to release its next monetary policy report later this month, which may provide official confirmation of the $10 billion inflow and details on the interest rates offered. Investors will also be watching for any signals on the RBI’s future forex intervention strategy.
2. U.S. Federal Reserve Policy: The trajectory of U.S. interest rates will be a critical factor for the rupee in 2026. If the Fed cuts rates, as some analysts expect, it could ease pressure on the dollar and reduce the need for further FCNR(B) inflows. Conversely, if the Fed maintains a hawkish stance, the rupee could face renewed depreciation, forcing the RBI to consider additional measures.
3. India’s Current Account Deficit: The sustainability of the rupee’s stability will depend on India’s ability to narrow its current account deficit, which widened to 2.5% of GDP in the first half of 2025-26. A further rise in oil prices or a slowdown in exports could exacerbate the deficit, putting pressure on the currency.
4. Structural Reforms: Economists have long called for reforms to boost India’s export competitiveness, reduce import dependency, and attract more stable capital flows. The government’s ability to implement these reforms—such as improving logistics infrastructure, easing labor laws, and incentivizing manufacturing—will be key to reducing the rupee’s vulnerability to external shocks.
5. NRI Remittances: India is the world’s largest recipient of remittances, with inflows exceeding $100 billion annually. Any slowdown in remittances, particularly from the Gulf countries, could offset the benefits of the FCNR(B) inflows and put additional pressure on the rupee.
Conclusion
India’s $10 billion foreign deposit surge has provided a much-needed lifeline to the rupee, offering short-term relief from global economic headwinds. However, the inflows underscore the country’s reliance on temporary capital measures rather than structural solutions to its external account challenges. While the RBI’s efforts have stabilized the currency for now, the rupee’s long-term resilience will depend on broader reforms to boost exports, attract stable capital, and reduce import dependency. As global economic conditions remain uncertain, the coming months will be critical in determining whether India can transition from crisis management to sustainable growth.
Story synopsis gathered from: Reuters — source.
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Story synopsis gathered from: Google News India — source.
