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India's central bank has accumulated an unprecedented $136.38 billion in foreign currency through a dedicated deposit mobilization scheme, far exceeding initial market projections. The massive influx has significantly reinforced the country's external buffers while shielding the Indian rupee from exchange rate volatility.
According to a Reuters report, India’s aggregate foreign exchange reserves scaled a historic peak of $729.33 billion in the week ending August 21.
The Reserve Bank of India (RBI) launched the special foreign currency Non-Resident Indian (NRI) deposit program in June to absorb soaring import bills and ensure dollar liquidity after escalating US-Iran geopolitical tensions triggered a sharp surge in global crude oil prices.
Outpacing initial market forecasts of $80 to $90 billion, the drive brought in $127.23 billion through non-resident foreign currency deposits, alongside $3.89 billion via external commercial borrowings (ECBs) and $5.26 billion through overseas commercial bank facilities.
Spurred by the unexpected volume of inflows, the RBI prematurely terminated the deposit window on August 31, ahead of its scheduled September closing. Vivek Rajpal, an Asia strategist at JB Drax Honore, noted that the resulting accumulation equips the Indian central bank with ample firepower to stabilize currency movements and insulate domestic financial markets from external shocks.
However, swapping these inflows for local currency has injected substantial surplus rupee liquidity into the domestic banking network, raising concerns over potential inflationary pressures. Siddharth Kothari, an economist at Sunidhi Securities, suggested that the central bank might temporarily hike the Cash Reserve Ratio (CRR) to mop up excess market liquidity.
While the emergency mobilization solved near-term foreign currency requirements and elevated national reserves to historical highs, market watchers point to structural risks ahead. Because the deposits carry tenures of three to five years, they create heavy debt repayment and redemption obligations down the line. A research note from Macquarie warned that collecting foreign liabilities at this scale could potentially destabilize currency markets and pressure the rupee once the settlement maturities arrive.
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