RBI Swap Window Draws $143.6 Billion, Led by $133 Billion FCNR(B) Deposits; Op-ed Questions the Cost

The news

Mumbai. Data released by the Reserve Bank of India (RBI) on Monday, September 21, show that its special US dollar–rupee swap facility attracted $143.596 billion of foreign currency inflows as reported by banks till September 18, The Indian Express reports. Of this, Foreign Currency Non-Resident (Bank) or FCNR(B) deposits — deposits that Non-Resident Indians (NRIs) keep in Indian banks in foreign currency rather than rupees — accounted for $132.98 billion, Overseas Foreign Currency Borrowings (OFCBs) $5.32 billion and External Commercial Borrowings (ECBs), meaning loans raised abroad by Indian entities, $5.296 billion. The previous update, on September 2, had shown about $127 billion of FCNR(B) deposits. The facility was introduced on June 8; banks could mobilise fresh three-to-five-year FCNR(B) deposits and swap the dollars with the RBI at a concessional rate, reducing their hedging cost. A swap here means the bank sells dollars to the RBI today and agrees to buy them back at a fixed rate on maturity. The RBI’s own press release of September 2, retrieved from rbi.org.in, confirms that the FCNR(B) window closed on August 31 while the ECB and OFCB windows remain open till December 31, 2026. The Economic Times reports that banks raised more in the last 10 days of the window than the $65.4 billion collected in the first 74 days, and that the total is more than five times the $26 billion raised under a similar scheme in 2013. Gaura Sengupta of IDFC First Bank expects total inflows to reach $160 billion by December, while Madhavi Arora of Emkay Global said rising global bond yields make ECBs less attractive. The Hindu reports that S&P cautioned the surge is unlikely to recur. In an ET op-ed, Rajeswari Sengupta of the Indira Gandhi Institute of Development Research notes that reserves rose from $682 billion when the scheme was launched on June 5 to $785 billion on September 4 and that the rupee, which in May seemed headed towards ₹100 to the dollar, stabilised at ₹94-96. But the swaps injected more than ₹10 lakh crore of rupee liquidity; mopping it up by selling ₹10 lakh crore of 10-year securities at about 7% would cost about ₹70,000 crore a year, and the RBI bears exchange-rate risk when the swaps reverse. The syllabus link is GS3 on the external sector, monetary policy and money supply.

Static syllabus linkage

1. FCNR(B), NRE and NRO accounts differ on currency, repatriation and exchange risk. Under the Foreign Exchange Management Act, 1999 and RBI regulations, NRIs may hold three main deposit types. FCNR(B) accounts are term deposits held in freely convertible foreign currency for one to five years, and the exchange-rate risk lies with the bank, not the depositor. Non-Resident External (NRE) accounts are held in rupees, fully repatriable, and the depositor bears the exchange risk. Non-Resident Ordinary (NRO) accounts hold income earned in India, are held in rupees, and repatriation from them is capped.
2. Every dollar the RBI buys creates rupees that must be absorbed or tolerated. When the RBI buys foreign currency, it pays in rupees, which expands banks’ reserves and the money supply. If the RBI does not want this extra liquidity to push interest rates below its policy rate and fuel inflation, it sterilises the inflow — it withdraws the rupees through open market sales of government securities, the Standing Deposit Facility introduced in 2022, variable rate reverse repo auctions, or a higher Cash Reserve Ratio under Section 42 of the RBI Act, 1934. The Market Stabilisation Scheme of 2004 allowed the government to issue special securities for this purpose. Each tool shifts the cost to someone: the RBI, the government or the banks.
3. The impossible trinity limits what a central bank can do at once. The impossible trinity, or trilemma, holds that a country cannot simultaneously have a fixed exchange rate, free capital movement and an independent monetary policy; it can pick only two. India runs a managed float with partially open capital flows, so large interventions in the currency market always have consequences for domestic liquidity and interest rates. The swap window is an attempt to stabilise the rupee through capital inflows, and sterilisation is the attempt to keep monetary policy independent. The op-ed is, in effect, asking what that combination costs.
4. The 2013 FCNR(B) window is the precedent. In September 2013, after the ‘taper tantrum’ triggered by the U.S. Federal Reserve’s signal that it would slow bond purchases, the rupee fell sharply and the RBI opened a concessional swap window for fresh FCNR(B) deposits and bank borrowings abroad. The window helped stabilise the rupee and rebuild reserves. When those deposits matured in 2016, the RBI managed the outflow smoothly. The 2026 scheme is far larger, which is why its maturity profile, three to five years out, now matters.

Why UPSC loves this

1. GS3 asks about capital flows and the rupee. The syllabus covers mobilisation of resources, monetary policy and the external sector. Mains questions have asked about the causes of rupee depreciation, the adequacy of forex reserves and the role of NRI deposits. This scheme gives a live example with numbers attached.
2. Prelims loves the difference between NRI account types and RBI liquidity tools. UPSC has asked about the features of NRE and FCNR deposits, the effects of RBI buying or selling dollars, sterilisation, and the Standing Deposit Facility. The FCNR(B) story ties them into one mechanism a student can remember.
3. The op-ed angle is how UPSC frames trade-offs. An answer that goes beyond ‘the scheme succeeded’ to ask ‘at what cost, to whom’ reflects the examiner’s preference for critical evaluation. The cost of sterilisation and the RBI’s dividend to the government are fair material for GS3 questions on fiscal-monetary interaction.

Analysis

1. Measuring the scheme by dollars raised is measuring the input, not the outcome. Rajeswari Sengupta’s central point is that $133 billion is a cost as well as a gain, because each dollar is a liability that must be repaid with interest. Reserves of $682 billion were already more than enough to finance a balance-of-payments deficit, so the marginal value of another $100 billion is modest. The benefit claimed is the steadier rupee, but a rupee at ₹95 rather than ₹100 is not obviously better for an economy whose exporters face cheap Chinese competition. The counter-view is that exchange-rate panic can itself be destabilising, and a credible defence in May may have prevented a self-fulfilling run whose costs would have been larger than any sterilisation bill.
2. The ₹70,000 crore sterilisation bill has to land somewhere. If the RBI sells securities, its income falls and so does the dividend it pays the government, which weakens the Budget. If the government issues special securities, the cost goes straight to the fiscal deficit. If the RBI raises the CRR, banks that never received a dollar are penalised and those paying NRIs 6-7% earn nothing on the parked money. There is no costless option, and the choice among them is really a choice about who pays for the rupee’s stability. The honest offset is the interest the RBI earns on the additional reserves invested abroad, which the op-ed says reduces but does not remove the net cost.
3. The RBI has swapped a present currency problem for a future one. The swaps must be reversed at the agreed rate when deposits mature in three to five years. If the rupee depreciates to ₹105 by then, the op-ed calculates a loss of ₹10 per dollar on an enormous base. The deposits also carry a bunching risk: a huge sum maturing close together can create a fresh episode of pressure on the rupee if NRIs choose not to renew. The 2013 experience was manageable because the amount was a fraction of today’s; the RBI will need to plan the exit years ahead, perhaps through forward purchases.
4. Time was bought, but not used to fix the balance of payments. The strongest justification for costly capital is that it buys time for structural repair — more FDI, deeper equity inflows, export competitiveness. The op-ed notes that no such measures have been announced, and that the rupee has begun to fall again as the war in West Asia intensifies. Borrowed dollars cannot substitute for earned dollars, from exports or long-term investment. The capital factor of production is strengthened only when inflows finance productive investment, not when they sit as reserves.
5. The surge in the final days shows how price-sensitive NRI capital is. Banks collected more in the last 10 days than the $65.4 billion of the first 74 days, which suggests depositors and banks were arbitraging a concession before it expired rather than making long-term commitments to India. S&P’s warning that the surge will not repeat and the talk of discouraging ECBs now that global yields are high both point the same way. Policy that relies on incentives of this kind must assume the money is mobile and will leave when the incentive ends.

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