India has achieved an unprecedented success with its recent forex swap facility, mobilizing $73 billion in foreign exchange inflows in less than 11 weeks. This initiative, driven largely by Foreign Currency Non-Resident (Bank) or FCNR(B) deposits, has significantly bolstered India's foreign currency reserves and external buffers.
The FCNR(B) deposits alone accounted for $65.4 billion of the total inflows, demonstrating a strong response from Non-Resident Indians (NRIs). The Reserve Bank of India (RBI) launched this special USD-INR forex swap facility on June 8, with an initial closing date of September 30 for FCNR(B) deposits. However, due to the overwhelming success, the RBI advanced the closure of the FCNR(B) window to August 31, with the facility for Overseas Foreign Currency Borrowings (OFCBs) and External Commercial Borrowings (ECBs) continuing until December 31. As of August 21, OFCBs contributed $4.9 billion and ECBs added $2.6 billion to the total.
This mobilization effort has surpassed the scale and pace of the RBI's 2013 FCNR(B) swap scheme, which raised approximately $26 billion over three months. The rapid accumulation of $73 billion underscores the confidence in India's banking system and economy amidst global market volatility. Major banks like HSBC, SBI, ICICI Bank, and HDFC Bank have been significant mobilizers of these funds, with HSBC leading with an incremental $6 billion and SBI following with $4 billion.
The successful inflow of foreign currency is expected to strengthen India's external-sector resilience and provide crucial foreign currency resources to the banking and corporate sectors. This initiative was strategically implemented to attract foreign capital and stabilize the Indian rupee against the dollar. The substantial increase in forex reserves, which rose by nearly $10 billion in the week ending August 15, is projected to push India's total reserves past the all-time high of $728 billion by the end of August. The concessional swap facility also offers regulatory relief on CRR and SLR requirements for eligible FCNR(B) deposits with a tenor of three to five years.
