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When your incentive program works too well, you apparently just pull the plug. The Reserve Bank of India announced on August 14 that it would close its special forex swap facility for Foreign Currency Non-Resident (Bank) deposits, known as FCNR(B), to new deposits after August 31. The original deadline was September 30.
That one-month truncation might sound minor, but the timing is what stings. RBI Governor Sanjay Malhotra said on August 5, just nine days before the announcement, that there were no plans to end the scheme early. Bankers and traders who took that at face value are now scrambling.
A facility that worked almost too well
The RBI launched the zero-cost forex swap facility on June 8, designed to attract foreign-currency deposits with maturities of three to five years. The goal was straightforward: shore up India’s external financial position and support the rupee amid persistent global economic pressures.
By August 13, in just 67 days, the program had pulled in $52.3 billion through FCNR deposits alone. Add another $1.7 billion via external commercial borrowing swaps and $2.8 billion from overseas foreign currency borrowings, and the total inflows hit roughly $56.85 billion.
Initial projections had anticipated mobilization of somewhere between $50 billion and $80 billion over the full duration. Hitting the low end of that range with a month still on the clock apparently convinced the RBI that the job was done.
The credibility question
When a central bank governor explicitly says a program isn’t ending early, and then it ends early less than two weeks later, the signal-to-noise ratio gets messy.
Bankers across India are now racing to lock in NRI dollar deposits before the August 31 cutoff. It’s worth noting that not everything is shutting down. The swap facilities for external commercial borrowings and overseas foreign currency borrowings remain open until the end of the year.
What this means for markets and liquidity
The rupee itself has been a beneficiary of the massive FCNR inflows. With $52.3 billion arriving in just over two months, the currency found meaningful support.
The broader lesson is one that central banks around the world have learned repeatedly: success in policy execution doesn’t excuse failure in policy communication. The RBI achieved its stated goal of strengthening India’s external position in 67 days, but by contradicting its own governor’s public statements within days, it paid a price in credibility that no swap facility can offset.
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