India Attracts Nearly $10 Billion to Support the Rupee

India has attracted nearly $10 billion under the Reserve Bank of India's (RBI) special NRI deposit mobilisation scheme, providing an early boost to the central bank's efforts to stabilise the rupee and strengthen the country's foreign exchange reserves. The initiative has emerged as a proactive strategy to attract overseas Indian savings at a time when the domestic currency continues to face pressure from global financial uncertainty, a stronger US dollar and volatile capital flows. While the initial response has been encouraging, the long-term success of the programme will depend on whether these inflows continue beyond the initial surge.

Why the RBI Introduced the Scheme

The RBI launched the special deposit scheme on June 5 to encourage Non-Resident Indians (NRIs) to place more foreign currency deposits with Indian banks. As part of the initiative, banks were provided with a zero-cost foreign exchange swap facility, allowing them to convert foreign currency deposits into rupees without incurring high hedging costs.

Subsequent regulatory clarifications further enhanced the scheme by giving banks greater operational flexibility, including the ability to use leverage more efficiently and issue guarantees or letters of credit against these deposits. These measures significantly improved the programme's attractiveness, enabling banks to offer higher returns while lowering their own foreign exchange risk.

The scheme reflects the RBI's broader objective of strengthening India's external financial position without relying solely on interventions in the foreign exchange market.

What Does the Deposit Drive Mean?

The RBI's strategy represents an alternative approach to supporting the rupee. Instead of selling foreign exchange reserves to stabilise the currency, the central bank is encouraging fresh dollar inflows through the banking system by making foreign currency deposits more attractive for NRIs.

According to market estimates, the programme has already mobilised around $10 billion, while economists believe total inflows could eventually reach $30 billion to $50 billion if participation continues to grow. To attract more deposits, several banks have raised Foreign Currency Non-Resident (FCNR-B) deposit rates to nearly 7.1 per cent, making them increasingly competitive for overseas investors.

The initiative also highlights India's continued reliance on its global diaspora as a source of financial resilience during periods of external economic uncertainty.

Impact on the Economy and Banking Sector

For the RBI, higher foreign currency inflows strengthen foreign exchange reserves, improve dollar liquidity and help reduce pressure on the rupee. A more stable currency can also enhance investor confidence, moderate imported inflation and reduce volatility in financial markets.

For banks, the scheme creates an opportunity to mobilise low-risk foreign currency deposits while expanding their international funding base. However, challenges remain. Higher overseas borrowing costs, taxation issues, regulatory compliance and operational complexities may affect the pace of future deposit mobilisation.

The real test will therefore be whether banks can sustain the momentum beyond the initial inflows and attract substantially larger volumes over the coming months.

A Strategic Cushion for External Stability

The RBI's NRI deposit programme demonstrates a policy approach that relies on incentives and market participation rather than aggressive intervention in the currency market. The initial mobilisation of nearly $10 billion suggests strong confidence among overseas Indians and provides immediate support to the rupee. If the scheme continues to attract substantial inflows, it could significantly strengthen India's external financial position, improve foreign exchange buffers and reinforce confidence in macroeconomic stability. Sustained participation, however, will depend on competitive deposit rates, supportive regulations and favourable global financial conditions, making the coming months crucial for the programme's long-term success.

(With agency inputs)