RBI has decided to prematurely close the special FCNR (B) deposit mobilization facility for banks. Earlier this facility was available till 30th September, which has now been reduced by RBI to 31st August. Let us know the details.<\/p>\n
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Amid rising dollar inflows, the Reserve Bank of India (RBI) has decided to prematurely close the special FCNR(B) deposit facility for banks. Previously, this facility was available until September 30th. The RBI has now extended this deadline to August 31st. Instead of September 30th, the facility will remain available until August 31st, 2026. Experts believe that this extension will not significantly impact the funding and liquidity benefits for banks.<\/p>\n
It should be noted that banks have already received significantly more foreign currency under this scheme than expected. Consequently, the RBI has now decided to end this special facility a month early.<\/p>\n
Why did the RBI shorten the deadline for FCNR(B) deposits?<\/p>\n
According to a report by CareEdge Ratings, as of August 13th, approximately $52.3 billion had been raised through FCNR(B) deposits. Including other foreign exchange facilities, total inflows stood at approximately $56.8 billion. CareEdge initially estimated that the plan could raise between $60 and $80 billion. Given the significant amount raised so far, it is believed that the plan has largely achieved its primary objective.<\/p>\n
Although the deadline closing a month early will deprive banks of the additional foreign exchange they would have received in September, CareEdge believes that the significant amount raised so far has already strengthened their liquidity positions. Furthermore, FCNR(B) deposits are unlikely to constitute a significant portion of banks\u2019 total deposits. Estimates suggest they may only represent around 3 percent of total deposits. While significant, they cannot be considered a permanent and primary source of funding for banks.<\/p>\n
It\u2019s worth noting that FCNR(B) deposits are a way for banks to raise funds in foreign currency. They provide relatively stable funds for the medium term. This benefit is especially important when banks\u2019 lending growth is faster than deposit growth.<\/p>\n
According to CareEdge, three-year FCNR(B) deposits offer an interest rate of approximately 6.5 percent, compared to 7.45 percent for domestic term deposits. The scheme also offers certain regulatory exemptions. This could make it relatively cheaper for banks to raise funds this way.<\/p>\n
A major concern for banks is the growing gap between loans and deposits. The credit-deposit ratio of the banking system increased to 82.7 percent around June-July 2026, from around 71.8 percent in March 2021. It is clear that bank loans have grown faster than deposits over the past few years. Therefore, funds flowing through FCNR(B) could provide some relief to banks in managing their liquidity and funding positions.<\/p>\n