RBI Pushes Back on Cost Criticism of $136 Billion FCNR(B) Deposit Drive

India's central bank is rejecting criticism that its large foreign-currency deposit initiative will be a drag on public finances. RBI Governor Sanjay Malhotra said the Foreign Currency Non-Resident (Bank) scheme, or FCNR(B), is expected to deliver net incremental income for the RBI, disputing analyst estimates that hedging alone could cost India $10.6 billion over five years. Inflows have far exceeded the RBI's initial expectations. When the program was rolled out in early June 2026, internal projections anticipated $35 billion to $55 billion in deposits. By August 2026, total inflows had topped $136 billion, with banks raising $127 billion specifically via FCNR(B) deposits. For context, India's foreign-exchange reserves before the program were about $700 billion to $730 billion, meaning the initiative effectively boosted the country's dollar buffer by roughly 18% within months. The deposit campaign was aimed at India's overseas diaspora and offered 6% to 7% interest on long-term placements, nearly double the roughly 3.5% rates prevalent before the launch. The RBI agreed to bear the full hedging costs for three- to five-year deposits booked between June 8 and September 30, 2026. It ended the hedging incentive early, on August 31, indicating the program reached its objectives ahead of schedule. Analysts have focused on the potential scale of hedging expenses given the $136 billion in inflows. Malhotra argued the funds will not remain idle. The RBI plans to invest the proceeds in overseas government securities, generating returns that, in his view, will more than offset the hedging bill. The RBI launched the scheme as external pressures built. Higher oil prices have widened India's current account deficit, and capital outflows have added strain on the rupee. The move echoes a smaller FCNR(B) effort in 2013 during an earlier rupee episode, which raised about $34 billion and was broadly seen as successful. The 2026 operation is about four times larger. The RBI also acknowledged the domestic liquidity impact. As banks convert part of the incoming foreign currency into rupees, liquidity rises in the local system. The central bank said it will manage excess liquidity through steps such as open market operations and adjustments to banks' reserve requirements.