RBI's FCNR(B) strategy draws praise as dollar inflows hit $12.7 billion

India's public sector bank chiefs have lauded the Reserve Bank of India's Foreign Currency Non-Resident (FCNR(B)) deposit framework for successfully channelling $12.7 billion in dollar inflows into the domestic financial system, according to discussions at the Business Standard BFSI Summit.

Bankers attributed the strong mobilisation to a combination of RBI policy measures, including swap facility support that has made FCNR(B) deposits more attractive to non-resident Indians and overseas investors. The central bank's leverage in international markets and targeted overseas outreach initiatives have also played a crucial role in drawing foreign currency deposits, participants noted.

The influx of FCNR(B) deposits has provided Indian banks with enhanced foreign exchange liquidity and reduced reliance on external borrowing. However, banking executives emphasised the need for strengthened risk management protocols to handle the growing quantum of foreign currency liabilities and market volatility associated with large deposit inflows.

The FCNR(B) scheme, which allows non-residents to place rupee funds in foreign currencies with Indian banks, has emerged as a key tool for managing India's external account positions while providing banks with stable deposit bases. As global capital flows remain volatile, sector leaders stressed the importance of maintaining prudent operational frameworks to mitigate currency and interest rate risks.