Inside the FCNR(B) scheme
The Foreign Currency Non-Resident (Banking) deposit scheme, or FCNR(B), is a special window the RBI opened to attract dollar-denominated deposits from non-resident Indians. NRIs can deposit foreign currency in Indian banks for fixed terms, earning interest rates often higher than what's available abroad. The special scheme adds an extra incentive, making it more attractive for NRIs to bring their money home.
The program is part of the RBI's toolkit to shore up India's foreign exchange reserves and manage the rupee's exchange rate. By offering a favorable rate, the central bank aims to draw in dollars that might otherwise stay overseas.
A $30 billion target
State-run banks have set a collective target of $30 billion, a figure that reflects their confidence in the scheme's appeal. As of mid-July, they had mobilized $10 billion, about one-third of that goal. The early pace suggests the scheme is resonating with NRIs, particularly those looking for a safe and profitable place to park their dollars.
The banks are now working to sustain the momentum. They've been marketing the scheme through overseas branches and partnerships with remittance firms. The $10 billion raised so far is a strong start, but the remaining $20 billion will require continued effort.
Why banks are optimistic
For state-run banks, the FCNR(B) deposits offer a cheap source of foreign currency. They can use these funds to meet foreign exchange needs or to lend to exporters. The scheme also helps them manage balance sheets, since FCNR(B) deposits have a fixed maturity, reducing the risk of sudden withdrawals.
The RBI benefits too. The inflows add to India's foreign exchange reserves, which act as a buffer against external shocks. A stronger reserve position can help stabilize the rupee, which has faced pressure from global factors.
The banks will continue accepting deposits under the special scheme until its stated deadline. The RBI hasn't publicly disclosed the closing date, but the banks are expected to push for more deposits in the coming weeks. The $30 billion
