- RBI confirms concessional forex deposit schemes will run as scheduled.
- Schemes attracted $40.82 billion, strengthening India’s external position.
- FPI and FDI inflows improved significantly, boosting overall capital.
The Reserve Bank of India (RBI) has ruled out any immediate plans to end its concessional foreign exchange deposit schemes ahead of schedule, signalling confidence that the measures will continue to attract overseas capital and support India’s external position.
Speaking after the Monetary Policy Committee (MPC) meeting on Wednesday, RBI Governor Sanjay Malhotra said the special swap facilities introduced earlier this year have already generated strong foreign currency inflows and are expected to continue doing so until their scheduled expiry.
The Governor’s comments come at a time when the RBI is witnessing an improvement in capital flows, a stronger balance of payments outlook and a recovery in foreign portfolio investment after earlier outflows.
No Proposal To End Forex Schemes Early
Responding to questions on whether the RBI was considering withdrawing the schemes before their scheduled deadlines, Malhotra said there was no such proposal under consideration, reported The Financial Express.
The concessional facilities were introduced on June 8 to encourage foreign currency inflows through three channels, Foreign Currency Non-Resident (Bank) [FCNR(B)] deposits, Overseas Foreign Currency Borrowing (OFCB) and External Commercial Borrowings (ECB), as part of broader efforts to strengthen the country’s external sector and bridge the balance of payments gap.
Under the current timeline, the FCNR(B) scheme will conclude in September, while the OFCB and ECB facilities will remain available until December. The RBI is also absorbing the currency hedging cost under the programme, making the facilities more attractive for participating institutions.
According to the Governor, the response so far suggests there is no need to alter the existing schedule.
Forex Inflows Gather Momentum
The central bank’s latest data indicates that banks have mobilised $36.73 billion through the special FCNR(B) deposit scheme.
Across all three concessional swap facilities, total foreign exchange inflows had reached $40.82 billion as of July 31, reflecting strong participation since the measures were introduced.
Malhotra said the inflows generated through these initiatives, along with other capital account developments, are expected to support a healthy balance of payments (BoP) surplus during the current financial year.
He noted that the capital flow measures announced in June had already begun yielding results, helping improve India’s external position.
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Capital Flows Improve Across Multiple Segments
The RBI Governor also highlighted an improvement in foreign investment trends beyond the forex deposit schemes.
According to him, foreign portfolio investment (FPI) witnessed a turnaround during June and July, recording net inflows of $7.1 billion, largely driven by debt investments, after experiencing net outflows during April and May.
Foreign direct investment (FDI) also showed stronger momentum.
Gross FDI inflows increased to $30.7 billion during April-June, compared with $26.7 billion in the corresponding period last year. Malhotra attributed the improvement to higher gross inflows alongside a moderation in outbound investment by Indian companies, resulting in stronger net FDI.
Taken together, these developments reinforce the RBI’s assessment that external financing conditions have improved over recent months.
RBI On The Rupee: Market Forces Will Continue To Lead
The Governor was also asked whether the sizeable foreign currency inflows generated through the schemes should have resulted in a stronger appreciation of the rupee.
Responding to the question, Malhotra said India’s macroeconomic fundamentals remain robust and observed that there could be an argument that the rupee appears undervalued when viewed through measures such as the nominal or real effective exchange rate.
He added that global uncertainty remains elevated, but noted that the rupee has strengthened over the past month, moving from around 97 against the US dollar to above 95, alongside signs of easing geopolitical tensions.
At the same time, he reiterated that the RBI has no intention of targeting a specific exchange rate.
The central bank, he said, will continue allowing the rupee to be determined by market forces while stepping in only to curb excessive volatility, discourage speculative behaviour and prevent disorderly market movements that could become inconsistent with underlying economic fundamentals.
Focus Remains On External Stability
The RBI’s latest comments suggest that the central bank remains satisfied with the performance of the concessional forex facilities introduced in June.
With billions of dollars already mobilised, improving FPI and FDI inflows, and expectations of a balance of payments surplus this year, the central bank sees little reason to alter the current framework.
For now, the FCNR(B), OFCB and ECB schemes will continue as scheduled, with the RBI maintaining that the measures are contributing to stronger external stability while broader capital inflows remain healthy.
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