RBI Plan Boosts Foreign Fund Inflows

The measures taken by the Reserve Bank of India to strengthen the country’s foreign exchange reserves have delivered better than expected results. Through the forex swap facility that ended on August 31 this year, Indian banks attracted FCNR(B) deposits worth $127.23 billion from Non-Resident Indians. The RBI disclosed these details on Wednesday. Against the backdrop of the West Asia crisis, the central bank announced several key measures during its monetary policy review in May to attract more foreign funds.

Under the facility, the RBI agreed to bear the full hedging costs incurred by banks while mobilising FCNR(B) deposits with maturities of three to five years. It also offered forex related concessions for overseas borrowings by government entities, along with several other measures. These concessions came into effect on June 8. FCNR(B) deposits allow NRIs, Persons of Indian Origin and Overseas Citizens of India to save and earn interest in foreign currency without converting their funds into Indian rupees.

Including FCNR(B) deposits, Overseas Foreign Currency Borrowings and External Commercial Borrowings, India received total foreign funds worth $136.377 billion as of August 31, according to the RBI. Of this, $5.26 billion came through OFCBs and another $3.891 billion through ECBs. Due to the unexpectedly strong response to FCNR(B) deposits, the RBI shortened the facility period from the initially announced September 30 to August 31. The forex concession facility for ECBs and OFCBs will remain available until December 31 this year, the RBI said.