FCNR Deposits and the Falling Rupee: India's $136 Billion Scheme for NRIs

The estimate moved three times, and each revision undershot the eventual number. At launch, Emkay Global and Motilal Oswal pegged the scheme at $40 to 50 billion. By late July, with momentum clearly building, SBI Research revised its own earlier $40 to 45 billion forecast up to $80 to 85 billion. The scheme still beat that revised number by more than 60%.

The pace itself accelerated. The first $20 billion took 38 days. The next $20 billion arrived in just 14. And in the final ten days before closure, an astonishing $61.8 billion came in, almost matching the entire first 74 days. RBI, watching this, responded by moving the FCNR(B) window's closure forward a full month, from September 30 to August 31, a decision that itself became part of the story.

Bank-level data was released only partway through the scheme, covering the period to July 30. At that snapshot, HSBC India led with over $6 billion, more than any single lender, despite a far smaller domestic branch network than SBI, ICICI, or HDFC. SBI followed with roughly $4.12 billion, ICICI Bank with about $3.7 billion, and Kotak Mahindra, Axis, and HDFC Bank each raised between $1.4 and 1.7 billion.

That snapshot doesn't tell the full story. By the scheme's actual close on August 31, ICICI Bank alone had raised $17.88 billion, close to 14% of the entire $127.23 billion pool, implying a massive final surge well beyond its July 30 standing. Separately, RBL Bank mobilised $3.40 billion. Complete final figures for every bank weren't published alongside ICICI's, so a definitive full-period leaderboard isn't yet public, but ICICI's scale by the end is clearly far larger than the mid-scheme numbers suggested.

What ICICI did with the money is the more interesting part, and it's genuinely concrete, not theoretical. Of its $17.88 billion raised, roughly $9 billion was extended as loans by its international branches and subsidiaries against those very deposits. The bank also issued standby letters of credit worth $3.63 billion to other banks in respect of loans extended against the same deposits. Combined, direct loans and SBLC-supported lending account for more than 70% of ICICI's entire FCNR(B) mobilisation, already deployed or committed, not sitting idle.

The scheme's design allowed NRIs to make leveraged deposits as part of what made it attractive, a detail confirmed across multiple reports, not isolated to one lender. Separately, HSBC's outsized early lead was reportedly built in part through its GIFT City IFSC banking unit offering leveraged FCNR structures, including products with leverage as high as 19 times, aimed specifically at high-net-worth NRI investors in the Gulf and Singapore.

Banking system liquidity swelled to roughly Rs 7.8 lakh crore by September 1, from just Rs 1.85 lakh crore when the scheme opened on June 5. The clearest evidence of what this means in practice sits in the certificate of deposit market, the short-term wholesale funding banks use to bridge gaps between deposit growth and credit demand. Three-month CD rates have cooled to around 6.3%, down from 7.09 to 7.23% when the scheme was announced, and from 7.30 to 8.00% at the end of March. Central Bank of India raised Rs 1,000 crore through CDs at 6.38% on a recent Tuesday, versus 6.60% for a similar maturity just four days earlier, and 7.15% back in March.

"CD rates have fallen because banks are flush with FCNR(B) inflows and overall system liquidity has risen substantially, reducing their need to raise funds through CDs. Lower issuance is also putting downward pressure on CD rates," said Gopal Tripathi, treasury head at Jana Small Finance Bank. Total CD issuance fell to Rs 68,130 crore in August, down from Rs 95,945 crore in July, as banks leaned less on wholesale funding.

There's a structural reason banks were this eager beyond patriotic duty. FCNR(B) deposits raised under this window are exempt from both CRR and SLR requirements that apply to domestic deposits, and the RBI-absorbed hedging cost means banks avoid the currency risk they'd normally bear. One brokerage estimate puts the resulting net interest margin advantage at roughly 60 basis points over equivalent domestic deposits, a genuine profitability edge, not just goodwill.

Here's the part that complicates any simple "more dollars means easier money" story. Despite the liquidity surge, India's 10-year benchmark government bond yield actually rose, from 6.82% to 6.98% since August 20, and is likely to weigh on short-term markets as well. The easing has stayed concentrated in the CD market and hasn't meaningfully spread across the broader fixed-income curve.

"While CD rates coming down is an advantage, this easing is not percolating to the other parts of the yield curve in the fixed-income market because of other concerns and the way oil is behaving," a senior treasury official at a private bank said. Global bond yields have been rising as markets price in tighter monetary policy worldwide, and RBI's own Monetary Policy Committee minutes show members are actively recalibrating the possibility of a rate hike based on the inflation-growth outlook, a live discussion, not settled policy.

RBI has already been using variable rate reverse repo (VRRR) auctions to absorb surplus liquidity from the system, an active, ongoing operation, not a theoretical option. According to a late-August analysis from IDFC First Bank, total liquidity infusion from the June 5 measures stood at roughly Rs 3.6 lakh crore by mid-August, and could peak around Rs 9.9 lakh crore in September before gradually declining to Rs 5.4 lakh crore by March 2027, as currency in circulation rises and the balance of payments moves closer to neutral.

RBI Governor Sanjay Malhotra has publicly downplayed the need for extraordinary measures, saying in early August that the eventual liquidity impact would be absorbed through normal channels and would not be "extraordinary or substantial." Bond market participants have been more skeptical, with some expecting RBI to eventually extend CRR requirements to this currently-exempt pool of deposits if the surplus proves more persistent than the Governor's framing suggests. Which view proves right is genuinely unresolved, and worth watching rather than predicting.

There's also a future obligation quietly building underneath all of this. Helios Capital founder Samir Arora, when the scheme had reached $60 billion, urged RBI to stop expanding it and proposed something specific: a dedicated FCNR redemption reserve, with RBI setting aside roughly $3 billion a month to cover the eventual repayment of principal and interest, arguing that India's headline forex reserves should be reported net of this known future obligation. His suggested cap was more than doubled before the scheme closed, which makes his underlying point more relevant now, not less: everyone agrees this money has to be repaid in three to five years, and managing that expectation now is easier than managing it when maturities start arriving in a concentrated window.

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