Bringing in US dollars: RBI flags off FCNR(B) chase, pushes banks to go all out for forex inflows

Reserve Bank of India (RBI) deputy governor Rohit Jain on Friday urged bank CEOs to step up efforts to mobilise overseas funds through FCNR(B) deposits, highlighting the central bank's focus on boosting dollar inflows.

The push comes amid RBI measures to incentivise foreign currency inflows, including swap facilities and hedging cost support for FCNR(B) deposits, aimed at strengthening forex reserves and easing pressures on the rupee.

The rupee depreciated nearly 11% last fiscal year and touched a record low of 96.96 against the US dollar in May. It closed at 95.11 on Friday.

At a closed-door meeting, Jain urged CEOs of large private and public sector banks to popularise the FCNR(B) scheme and maximise efforts to raise overseas deposits, three bankers aware of the discussions said.

"The RBI's message to banks is that the country needs foreign currency inflows-it is the need of the hour. Mobilise as much as you can," one of the persons said.

Almost all banks have raised interest rates by 200-300 basis points this week, offering between 5.25% and 7.1% on three- to five-year FCNR(B) deposits, primarily because the regulator is bearing the entire hedging cost.

Jain also urged banks to promote the Unified Lending Interface (ULI), retail government securities, and the central bank digital currency, saying lenders should make it easier for retail investors to access these products.

On June 5, the Reserve Bank of India opened a special window for banks to mobilise FCNR(B) deposits from NRIs-its first since 2013-and offered a 1.5% fixed-rate swap facility for PSU ECB borrowings.

Economists and bankers estimate these measures could lift the rupee to 92-93 levels and attract $30-50 billion in inflows, while an ICICI Bank research report pegs the potential at $70 billion.

Bankers said the most attractive feature of the scheme is the 'at-par swap' arrangement, which gives lenders a concession of at least 280-300 basis points compared with prevailing market swap costs. In addition, the regulator has removed restrictions barring banks from issuing letters of credit or guarantees against these deposits, a move that could amplify inflows by 10-20 times the actual capital deployed.

Economists said the RBI's measures are aimed at easing external funding constraints and stabilising the rupee. The central bank stepped up interventions after the US-Iran conflict began, which led to a drawdown in reserves. Its net short forward position stood at $95 billion as of April, indicating significant intervention. Foreign exchange reserves fell to $681 billion as of June 5, after touching a peak of $728 billion in February.