Reserve Bank of India rejects cost concerns over foreign-currency deposit drive

India’s central bank has a message for critics of its massive foreign-currency deposit program: the math works in our favor.

RBI Governor Sanjay Malhotra said the Foreign Currency Non-Resident (Bank) scheme, known as FCNR(B), generates net additional revenue for the central bank, directly countering analyst warnings that the program could cost India $10.6 billion over five years in hedging expenses alone.

A deposit drive that wildly overshot expectations

When the RBI launched the FCNR(B) scheme in early June 2026, internal projections pegged inflows somewhere between $35 billion and $55 billion. Total inflows exceeded $136 billion as of August 2026, with banks raising $127 billion specifically through FCNR(B) deposits. To put that in perspective, India’s entire forex reserves prior to the program sat around $700 billion to $730 billion. The scheme effectively added roughly 18% to the country’s dollar cushion in a matter of months.

The program targeted India’s sprawling diaspora, offering competitive interest rates of 6% to 7% on long-term deposits. That’s nearly double the roughly 3.5% rates that had been standard before the scheme launched. The RBI absorbed the full hedging costs for deposits with maturities of three to five years made between June 8 and September 30, 2026.

The RBI ended its hedging incentive a month early, on August 31, suggesting the program hit its targets faster than anyone anticipated.

The cost debate

Critics and analysts had flagged what looked like a straightforward problem. With $136 billion in inflows, the bill for hedging costs could theoretically reach $10.6 billion over five years, according to analyst estimates.

Malhotra’s counterargument is that the dollars raised won’t just sit in a vault. The RBI plans to deploy those funds into overseas government securities, which themselves generate returns. The governor’s position is that the investment income from parking $136 billion in foreign sovereign debt more than offsets whatever the hedging tab comes to.

Why India needed this now

The FCNR(B) scheme didn’t emerge from nowhere. Rising oil prices had been widening India’s current account deficit, since the country imports the vast majority of its crude. Capital outflows added further strain on the rupee.

There’s a precedent for this kind of move. India ran a similar FCNR(B) scheme in 2013 during a previous rupee crisis, though on a much smaller scale. That episode raised around $34 billion and was widely considered a success. The 2026 version dwarfs it by a factor of four.

Managing the flood

A $136 billion inflow doesn’t arrive without side effects. When diaspora dollars flow into Indian banks, those banks convert a portion into rupees, which floods the domestic banking system with liquidity. The central bank has acknowledged this dynamic and indicated it will take measures to drain excess liquidity from the system, ranging from open market operations to adjustments in reserve requirements for banks.

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