India has attracted more than $127 billion through the special FCNR(B) window, but the unusually large inflow has triggered a debate over interest costs, currency risk, banking liquidity and the eventual burden on the economy.
India’s special foreign-currency deposit drive has attracted an unprecedented amount of money from non-resident depositors, giving the country a major boost to its foreign-exchange buffers.
The Editorial Team of Behind The Headlines reports that the scale of the inflows has now shifted attention from how much money came in to a more difficult question: what will these deposits ultimately cost India?
What is the FCNR(B) scheme?
FCNR(B), or Foreign Currency Non-Resident Bank deposits, allow eligible non-resident Indians to keep deposits in foreign currencies with Indian banks.
In June 2026, the Reserve Bank of India introduced a special USD-INR swap facility to encourage banks to raise FCNR(B) deposits. Under the arrangement, the RBI agreed to absorb the foreign-exchange hedging cost for these deposits.
The FCNR(B) window was originally scheduled to remain open until September 30 but was brought forward to August 31 after inflows exceeded expectations.
By August 31, authorised dealer banks had reported $127.226 billion in FCNR(B) inflows. Including overseas foreign-currency borrowings and external commercial borrowings, total inflows through the special facility reached $136.377 billion.
Why did the inflows become so large?
The RBI's decision to absorb the hedging cost made it cheaper for Indian banks to attract dollar deposits.
Banks subsequently offered relatively attractive interest rates to NRIs. The special arrangement also reduced some of the costs normally associated with foreign-currency deposits.
The government's own account described the response as unprecedented, noting that the combined inflows had reached $73 billion by August 21, with FCNR(B) deposits accounting for $65.4 billion at that point.
The final FCNR(B) figure was considerably higher.
Where does the cost come from?
This is where the debate begins.
Economist and former Finance Secretary Subhash Chandra Garg, writing in an opinion analysis published on September 17, argues that the headline inflow figure should not be treated as a free addition to India's financial resources.
His calculation starts with the difference between the interest rates that FCNR(B) deposits historically offered and the significantly higher rates offered under the new arrangement.
Garg estimates that the additional interest cost on $127 billion of deposits could amount to roughly $17.5 billion, or around â‚ą1.75 lakh crore at an assumed exchange rate of â‚ą100 to the dollar. He further estimates a potential foreign-exchange-related cost if the rupee depreciates substantially before the deposits mature.
These are Garg's estimates and assumptions, rather than an official government or RBI projection.
The rupee-depreciation question
FCNR(B) deposits are denominated in foreign currency. That means the RBI's swap arrangement has to account for the exchange rate at which the dollars are eventually returned.
Garg argues that if the rupee depreciates substantially during the roughly three-to-five-year maturity period, the broader economic cost of servicing the foreign-currency liabilities could become significant.
He uses a scenario in which the rupee moves towards ₹120–125 per dollar by 2030 and estimates a combined potential cost of around ₹5 trillion.
That number should not be interpreted as a forecast or an established liability. It is the result of assumptions used in his analysis about future exchange rates and the additional interest cost.
But there is another side to the calculation
The cost debate is not settled.
An analysis by economist Gaura Sengupta, published separately, argues that looking only at the RBI's hedging expense gives an incomplete picture.
The analysis notes that the inflows also provide foreign-currency resources to the banking system and can reduce pressure on domestic liquidity and funding conditions. Banks also receive benefits because FCNR(B) deposits have different reserve and capital treatment from ordinary rupee deposits.
Sengupta estimates that the RBI's net annual cost could be considerably lower than some headline estimates because the foreign currency received can itself be invested in overseas assets that generate interest income.
This creates an important distinction: the gross cost of the scheme is not necessarily the same as its eventual net cost to the RBI or the economy.
What happened to the rupee?
One of the biggest questions surrounding the scheme is why such a huge inflow did not result in a dramatic strengthening of the rupee.
The answer partly lies in how the swap mechanism works.
The RBI receives dollars and provides rupees to banks under the arrangement. The dollars are not necessarily sold immediately in the spot market to support the rupee. The central bank therefore gains foreign-exchange reserves while managing the corresponding rupee liquidity through its monetary operations.
The rupee has continued to face pressure from several other factors, including elevated oil prices, global interest-rate movements and India's external balance.
On September 17, the rupee fell to around â‚ą96.08 per dollar, with market participants reporting likely RBI intervention.
A liquidity problem of its own
The huge inflows have also created an unusual domestic banking problem.
Banks converted much of the foreign currency raised through the scheme into rupee liquidity. With the ability to deploy those funds into profitable lending not keeping pace with the inflows, excess liquidity accumulated in the financial system.
Recent reporting put the liquidity surplus at roughly â‚ą10 lakh crore, prompting the RBI to use measures including government-security sales to absorb some of the excess.
This illustrates the complicated trade-off involved: an inflow that strengthens foreign-exchange reserves can simultaneously create a liquidity-management challenge.
Who ultimately bears the cost?
There are several possible channels.
Banks: They pay interest on the FCNR(B) deposits and must find profitable uses for the funds. If lending returns are insufficient, their margins can come under pressure.
RBI: The central bank absorbs the agreed hedging cost and manages the resulting liquidity. Its eventual net cost depends partly on how the foreign currency is invested and how exchange rates move.
Government: Any significant reduction in RBI earnings could eventually affect the dividend transferred to the government, although the size of any such impact is uncertain.
The broader economy: If the rupee depreciates substantially, the cost of imported commodities, particularly oil, can rise. Foreign-currency debt servicing can also become more expensive.
Garg argues that these broader effects mean the ultimate burden should be viewed as a national economic cost rather than simply a line item on the RBI or banking-sector balance sheet.
Why did the RBI close the window early?
The early closure itself is significant.
The RBI had originally planned to keep the FCNR(B) window open until September 30. It brought the deadline forward by a month after the inflows substantially exceeded expectations.
The central bank still allows the related swap mechanism to process certain deposits already contracted, while the ECB and OFCB components remain open until December 31.
The decision suggests that the policy objective of attracting foreign-currency resources had been reached much faster than anticipated.
The bigger question: reserves or liabilities?
The FCNR(B) programme has undoubtedly increased India's foreign-currency resources.
But these are not permanent additions to national wealth. FCNR(B) deposits are liabilities that must eventually be returned to depositors, along with the agreed interest.
That makes the maturity period important.
If India's external position remains strong when the deposits mature, repayment could be manageable. If the rupee is significantly weaker and external pressures are high at that point, the economic adjustment could be more difficult.
This is why the debate has shifted from “How much money did India attract?” to “How efficiently can India deploy it, and what will it cost when the money has to be returned?”
What to watch next
Three indicators will provide a clearer picture of whether the scheme ultimately delivers a net benefit:
The rupee-dollar exchange rate over the next three to five years.
How banks deploy the additional liquidity and whether it translates into productive credit.
The RBI's eventual hedging, investment and liquidity-management costs, including any effect on its annual surplus transfer to the government.
The record inflows have given India a much larger foreign-currency buffer. The longer-term assessment, however, will depend on what happens between the arrival of those dollars and the day they have to leave again.