RBI’s special forex window could draw up to $85 billion, says SBI Research

Foreign currency deposits mobilized under the Reserve Bank of India’s special window are gathering pace, with SBI Research projecting Foreign Currency Non-Resident (Bank), or FCNR (B), deposits of $65-70 billion by the time the window closes on 30 September.

Total foreign currency inflows, including overseas foreign currency borrowings (OFCBs) and external commercial borrowings (ECBs), could reach $80-85 billion.

The Reserve Bank of India (RBI) introduced the temporary dollar-rupee swap facility for fresh FCNR(B) deposits on 5 June, operationalizing it from 8 June, as part of a broader package of measures to strengthen India’s balance of payments and attract foreign capital. The special measures are available for FCNR(B) deposits until 30 September 2026, while OFCBs and ECBs remain eligible until 31 December 2026.

In its report released on Monday, SBI Research estimated that FCNR(B) deposits had reached $26-28 billion by 23 July, about 45 days after the facility became operational, surpassing the roughly $26 billion mobilized during the 2013 special FCNR(B) window, which took nearly three months.

FCNR(B) deposits are fixed-term foreign currency deposits that non-resident Indians, persons of Indian origin, and overseas citizens of India can hold in designated foreign currencies, including the US dollar, pound sterling, euro, Japanese yen, Canadian dollar and Australian dollar. Because the deposits are denominated in foreign currency, depositors are protected from exchange-rate risk, while both principal and interest are freely repatriable.

Public banks power the surge

SBI Research said public sector banks, particularly larger lenders, are driving the mobilization by leveraging long-standing relationships with overseas customers and adopting an “optimally blended onshore-offshore gameplan.”

It also expects most FCNR(B) deposits maturing in August and September 2026 to be renewed at the higher interest rates available under the current regime, adding around $10 billion over baseline estimates, particularly from jurisdictions offering tax concessions.

The report said the strong mobilization has yet to be fully reflected in India’s foreign exchange reserves because banks swap these deposits with the RBI at designated intervals to obtain rupee liquidity. The deposits are added to the RBI’s Foreign Currency Assets (FCA) only after those swaps occur.

While FCNR(B) inflows had reached $17.4 billion by 17 July, India’s FCA had increased by only $7.6 billion since 8 June, implying that only about 44% of the deposits had been swapped with the RBI by then.

SBI Research expects FCA to rise by another $10-12 billion in the reporting weeks ending 24 July and 31 July, taking cumulative reserve accretion to $17-20 billion by end-July, largely reflecting FCNR(B) inflows.

The report also pointed to banking system data that it said was consistent with FCNR(B)-led mobilization. During the first fortnight of July, time deposits increased by ₹87,995 crore, even as overall bank deposits fell by ₹2.59 trillion because of seasonal outflows. SBI Research said the increase in time deposits may have been driven by FCNR(B) inflows.

The weak link

Despite the strong inflows, SBI Research argued that the continued depreciation of the rupee remains a key concern and called for more decisive RBI intervention in the foreign exchange market.

The report said the rupee initially strengthened after the RBI announced concessional swap facilities for fresh FCNR(B) deposits, OFCBs and ECBs, but later came under pressure from the West Asia conflict, volatile energy prices and cautious foreign portfolio flows.

It noted that the rupee has depreciated by around 12.5% since 1 April 2025 and warned that allowing the currency to weaken despite robust capital inflows could create an “endless fall driven by self-fulfilling prophecy” after the FCNR(B) window closes on 30 September 2026.

On Monday, the rupee climbed to 95.7950 per US dollar, having settled at 96.5625 in the previous session.

Describing the relationship between exchange rates and capital flows as a “chicken-and-egg problem”, the report argued that a weaker rupee discourages capital inflows, while lower inflows further weaken the currency. Based on client data from the Clearing Corp. of India Ltd, it found 81 instances since 2 March 2026 where buy transactions exceeded $1 billion, compared with 28 sell instances, indicating significantly stronger demand for importer hedging.

Using a Censored Tobit model, SBI Research estimated that the RBI intervened in the foreign exchange market on 31 trading days between January and July 2026, with average intervention of about $14 million per day in response to rupee depreciation. While intervention responded to exchange-rate pressures, the report concluded that it was not statistically effective in reducing exchange-rate volatility, suggesting the scale of intervention was inadequate given India’s foreign exchange reserves of around $676 billion.

Drawing a comparison with the 1997-98 period under former RBI governor Bimal Jalan, the report said average intervention then was about $55 million per day, despite India’s foreign exchange reserves being only around $29 billion, and proved more successful in stabilizing the rupee.

Analysing individual intervention episodes between January and July, SBI Research found RBI intervention prevented further rupee depreciation beyond the intervention day in only about 40% of cases. In the remaining 60%, the rupee resumed weakening in the following trading session, suggesting recent interventions have largely contained intraday volatility rather than produced sustained stabilization.

External-sector boost

SBI Research now expects the “others” component of the capital account, including loans, capital flows and rupee debt service, to receive an additional $75-85 billion during FY27 because of the RBI measures. It also projects inward remittances to exceed $150 billion, foreign direct investment (FDI) inflows of $15-18 billion, and improved portfolio flows during the first half of FY27.

As a result, the report estimates India’s balance of payments will post a surplus of more than $50 billion in FY27, compared with its earlier expectation of a $65-70 billion deficit, while the current account deficit is projected at 1.0-1.2% of GDP.