India imports most of its oil. When crude prices go up, the country has to spend more foreign currency to pay for it, and that puts pressure on the rupee. The Indian currency has been trading near record lows lately, according to the central bank.
To fight that pressure, the Reserve Bank of India launched a program in July. The central bank gave banks greater flexibility to provide competitive interest rates on deposits from non-resident Indians - people of Indian origin living abroad - to attract foreign currency. The RBI covered all hedging expenses, effectively subsidizing the program.
The early results are out, and the numbers look solid.
India's dependence on imported crude oil makes its currency particularly sensitive to global energy prices. With the rupee weakening to near-record levels, the RBI's scheme aimed to bolster foreign exchange reserves without directly intervening in the forex market. By incentivizing banks to offer higher rates on NRI deposits, the central bank encouraged a steady dollar inflow that could help cushion the currency against further depreciation. The scheme's early success indicates strong confidence among the Indian diaspora.
Banks offer special rates on these deposits to make them attractive. The RBI also set deadlines to create urgency.
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Gaura Sen Gupta, chief economist at IDFC First Bank, called it "a very healthy start to capital inflow scheme." Lead economist Madhavi Arora of Emkay Global stated that the new figure bodes favorably for India's external finances, and noted that the RBI has finally put the "low FCNR mobilization narrative to rest."
The deposit window still has a few weeks left. Total inflows from the foreign currency non-resident deposits and external commercial borrowing plans are "still expected to reach $60-75 billion during the stipulated window," said Madhavi Arora.
Gaura Sen Gupta remarked that the current pace might lead to an upside risk to her projection of $50 billion in total FCNR-B inflows for the scheme.
The RBI's deposit scheme was designed to bring in foreign currency without the central bank having to sell its own reserves directly.
By offering attractive rates on NRI deposits, the program effectively crowds in dollar inflows that can act as a buffer against further currency weakness. This approach helped the RBI manage external pressures while maintaining a degree of market stability.
Such NRI deposit programs have been used by the RBI in past episodes of rupee stress, often with subsidized hedging costs to boost participation. The current inflows already account for a significant share of the targeted $60-75 billion, reflecting the diaspora's willingness to support India's external finances before the September cutoff.
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