RBI Special Window: FCNR(B) Inflows Could Have Crossed $100 Billion By Sept 30

The RBI has decided to close its special FCNR(B) swap window early after foreign-currency inflows through the facility came in much stronger than expected.

Banks had already mobilised $52.3 billion through FCNR(B) deposits as of August 13. At the current pace, inflows could have crossed $100 billion if the window had remained open until September 30.

The RBI now expects total FCNR(B) mobilisation to reach around $70–80 billion by the end of the shortened window.

A key consideration behind the early closure is the potential increase in RBI's hedging exposure. FCNR(B) deposits have a tenor of 3–5 years, meaning a larger pool of deposits would translate into greater foreign-currency exposure that needs to be managed over several years.

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There is also uncertainty around the interest-rate environment over the next three to five years. With future global interest rates and hedging costs difficult to predict, continuing to incentivise large additional inflows could leave the RBI with a significantly higher long-term hedging exposure.

The strong response to the facility has therefore reduced the need to keep the window open for the full period, while allowing the RBI to cap its exposure.

Importantly, the closure does not rule out the use of such a facility again. If forex liquidity conditions warrant additional dollar inflows in the future, the RBI can reintroduce a similar facility.

The move, therefore, is largely about calibrating dollar inflows and managing longer-term hedging exposure after the facility attracted a much stronger response than anticipated.

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