Synopsis

India has attracted nearly $32 billion in foreign capital since the RBI announced special inflow measures on June 5, Governor Sanjay Malhotra said. FCNR(B) deposits have already exceeded the 2013 record, but strong dollar demand linked to costly oil imports and weak exporter hedging continues to keep the rupee near record lows.

India's efforts to attract foreign capital have drawn in $32 billion so far, RBI Governor Sanjay Malhotra said in a media interview, with the bulk of the inflows coming through FCNR(B) deposits. Remarkably, FCNR(B) deposits have already surpassed the 2013 level of $26 billion in just around 45 days, making it one of the fastest foreign currency deposit drives in India's history.

"Till date, banks have mobilised almost $32 billion," Malhotra told the publication. "Obviously, most of it is coming through FCNR(B) deposits. The figures related to ECBs and OFCBs are lumpy. In addition, we have got more than $7 billion in inflows into government securities since June 5, when the policy announcements with respect to government securities were made. At this pace, the total inflows are likely to be robust."

Malhotra added that the RBI is closely monitoring whether existing deposits are being recirculated to take advantage of the higher interest rates on offer but said there is no significant cause for concern at this stage.

"We do not find any prima facie evidence of recirculation of the existing deposits, in whatever form, to be of any significance or concern," he said.

The dedicated facilities, announced by the RBI on June 5, offer concessional swaps designed to incentivise capital inflows, support the balance of payments, cushion the depreciating rupee, and help contain imported inflation. The window for FCNR(B) deposits remains open until September 30, while the window for ECBs and OFCBs runs through December 31.

According to a State Bank of India (SBI) report, FCNR(B) deposits under the scheme could total $65–70 billion, with combined inflows from FCNR(B), OFCB and ECB routes potentially reaching $80–85 billion. The report notes that a significant majority of existing FCNR deposits maturing in August-September 2026 are expected to be renewed under the new scheme, drawn by the higher interest rates which will further boost FCNR(B) inflows.

Despite the strong inflows, the rupee continues to hover near its all-time low of around 96.15, which analysts attribute to persistently high dollar demand.

"Broader markets are still wrestling with the correlation between these flows and the foreign currency position, and why the exchange rate has continued to weaken even after such strong capital inflows," said Soumya Kanti Ghosh, Group Chief Economic Adviser at SBI. "Public sector banks — led by the larger ones — are apparently anchoring the drive, ensuring incremental flows by leveraging not just deposits but also the trust built with materially significant clients across various geographies, while remaining tacitly agile by shifting to an optimally blended onshore-offshore strategy."

The SBI report also notes that the RBI's intervention in the foreign exchange market has been sporadic and not full throttled since the disturbances in West Asia broke out. The report finds that the RBI intervenes an average of $14 million a day to counter rupee depreciation — a statistically significant figure. However, while the volatility coefficient is positive, it is not statistically significant, suggesting that this level of intervention has been insufficient to rein in volatility or halt further depreciation of the rupee.

"The current tanker costs and oil prices are so high that dollar requirements continue to remain very high for OMCs and others, causing large dollar outflows," said Suresh Ganapathy, Managing Director and Head of Financial Services Research at Macquarie Capital. "Secondly, exporters in the pharma, MSME and other spaces aren't entering into many hedging contracts due to the current uncertainty. When you strike a customised over-the-counter (OTC) forward agreement through an authorised bank dealer, you commit to selling a fixed amount of USD at a pre-agreed rate on a specific future date — and exporters simply aren't striking those contracts to sell USD and buy INR, which adds further pressure. The proof is in the numbers: FX reserves as of July 3, 10 and 17 have all been flat at around $675 billion, which essentially tells you that outflows have been large."

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