NRI Deposits Surge Nearly Sevenfold to $36 Billion as RBI's Swap Window Pulls in Diaspora Dollars

The global Indian diaspora has become one of the most important sources of support for the rupee this year. Deposit inflows from non-resident Indians rose 678.2 per cent to $36.24 billion in April to July of the current financial year, up from $4.66 billion in the same period a year earlier, according to Reserve Bank of India data reported by Business Standard on 27 September.

Almost all of that increase went into one product. Inflows into Foreign Currency Non-Resident (Bank), or FCNR(B), deposits reached $34.53 billion over the four months, compared with just $772 million a year earlier. Outstanding FCNR(B) balances stood at $68.28 billion at the end of July, and total outstanding NRI deposits across all schemes reached $200.89 billion, up from $168.51 billion a month earlier and $167.86 billion a year ago.

What drove the surge

The catalyst was a policy choice. In June, as oil prices climbed and the rupee came under pressure from the conflict in West Asia, the RBI introduced a concessional swap facility that allowed banks to swap foreign currency raised through FCNR(B) deposits with the central bank on favourable terms. That made it attractive for banks to offer higher rates on dollar deposits, and for NRIs to lock in those rates. The facility had mobilised about $133 billion through 31 August across its components, according to RBI data.

The mechanism resembles the FCNR(B) swap window the RBI ran in 2013, when the taper tantrum hit the rupee. On that occasion, the central bank mobilised around $34 billion in three months. This year's programme has been considerably larger, reflecting both the scale of the external shock and the growth in the diaspora's wealth over the intervening decade.

For NRIs, FCNR(B) deposits carry specific advantages. They are held in foreign currency, so depositors bear no exchange rate risk. Interest is tax-free in India, and both principal and interest are fully repatriable. For a software engineer in California or a physician in the Gulf, a competitive dollar deposit rate at an Indian bank, without currency risk, is a straightforward proposition.

Rupee accounts tell a different story

The picture in rupee-denominated accounts is very different. Non-Resident External (NRE) deposits, which are held in rupees and therefore expose depositors to currency movements, drew inflows of only $207 million in April to July, down sharply from $2.42 billion a year earlier. Outstanding NRE balances were $98.02 billion. Non-Resident Ordinary (NRO) accounts, typically used for income earned in India such as rent or dividends, received $1.51 billion, with outstanding balances of $34.59 billion.

The shift from NRE to FCNR(B) is a rational response to the environment. With the rupee under pressure from high oil prices and foreign portfolio outflows, NRIs have preferred to keep their savings in dollars while still earning Indian bank rates. The swap facility made that choice more rewarding.

Remittances outward edge up

The same data release covered money flowing out of India under the Liberalised Remittance Scheme, which allows resident individuals to send up to $250,000 a year abroad. Outward remittances rose 4.7 per cent year-on-year to $9.37 billion in April to July. Investment-related remittances into overseas equity and debt doubled to $1.4 billion, deposit-related remittances rose 39.3 per cent to $330.32 million, and remittances for purchasing property abroad increased 13.34 per cent to $185.33 million.

Travel remittances, the largest single component, fell 1.31 per cent to $5.27 billion, while education remittances dropped 30.6 per cent to $472.66 million. The decline in education spending abroad is notable given India's position as one of the largest sources of international students. It likely reflects tighter visa regimes and policy uncertainty in several major destinations, as well as a weaker rupee raising the cost of tuition. In July alone, total outward remittances rose 5.3 per cent to $2.45 billion.

The reserves connection

The deposit surge has had a direct effect on India's foreign exchange reserves. Reserves fell to $666.9 billion in the week ended 26 June, after the RBI sold dollars to defend the rupee, then rose sharply as FCNR(B) and swap inflows came in. They reached a record $785.7 billion in the week ended 4 September, before falling to $765.9 billion in the week ended 18 September as the RBI resumed dollar sales. In July, the central bank recorded net dollar purchases of $18.65 billion, a record, largely because of funds mobilised through the deposit scheme.

There is a cost attached. Dollars raised through swaps create forward obligations: the RBI must deliver those dollars back when the swaps mature. The central bank's outstanding net short position in the forward market reached a record $136.77 billion at the end of July. Reserves are higher, but a larger portion of them is spoken for.

Taken together, the numbers describe a two-way flow that nets out strongly in India's favour. While resident Indians sent a little over $9 billion abroad in four months for travel, education and investment, non-residents placed more than $36 billion in Indian bank deposits. That asymmetry is a direct result of policy design, and it shows how quickly the diaspora's savings can be mobilised when incentives are aligned.

What it means for the diaspora

For the roughly 35 million people of Indian origin living abroad, the episode carries two messages. The first is that their savings now matter at a macroeconomic level. In 2013 and again in 2026, the RBI has turned to the diaspora in moments of external stress, and the diaspora has responded quickly when the terms were right. The second is that the attractive terms on offer are tied to a specific policy window. Once the swap facility closes, FCNR(B) rates are likely to normalise, and depositors will need to decide whether to renew at lower rates when their deposits mature.

Financial advisers to NRIs will also point to the maturity profile. Many of the deposits raised under the scheme carry fixed terms, and the concentration of inflows in a few months means a large volume will come up for renewal at roughly the same time. How banks price those renewals, and whether the RBI chooses to extend or replace the swap facility, will shape whether the money stays in India or moves to higher-yielding alternatives abroad. With US Treasury yields above 5 per cent, the competition for diaspora dollars is not trivial.

For Indian banks, the inflows have provided a large pool of relatively stable foreign currency funding at a time when domestic deposit growth has been competitive. For policymakers, they have bought time and credibility in managing the rupee through an oil shock. The diaspora has moved from sending money home to shoring up the country's external balance sheet, and that is a role Indian authorities are likely to call on again.