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Informist, Thursday, Jul. 16, 2026

NEW DELHI – Inflows from the Reserve Bank of India's Foreign Currency Non-Resident Deposit scheme have been lower than expected so far, Barclays said in a report Thursday, adding that while banks have noted that inflows will pick up momentum, a number of factors could mean overall flows fall short of lofty market expectations. Moreover, a resumption of tensions in West Asia and higher oil prices are weighing on the rupee and could fuel further pressure in the weeks ahead, it said.

"The boost to sentiment emanating from the recent RBI measures to shore up India's balance of payments and in turn the rupee, appears to be fading though we think its still too early to suggest that the measures will not be successful," Barclays said. "We continue to believe that the measures have taken out the tail risk from the rupee and will help turn India's balance of payments position into a healthy surplus. However, FCNR inflows have disappointed so far."

On Jun. 8, the RBI had unveiled a facility under which it will bear the full hedging costs for banks raising fresh three- to five-year FCNR(B) deposits until Sept. 30. An Informist Poll estimated that the swap window will bring in about $43 billion.

FCNR(B) inflows have been reportedly around $5 billion-$6 billion, Barclays said, adding that some of the limited inflow may have been due to earlier uncertainty about leverage and due to uncertainty over whether banks could use their GIFT City branches to mobilise deposits. Barclays see potential for $25 billion-$30 billion FCNR inflows from the RBI's scheme in the next few months. 

While factors like the RBI fully absorbing hedging costs, cash reserve ratio and statuory liquidity ratio exemption and leverage returns may drive stronger inflows in the remainder duration of the scheme, it will require a relatively high run rate to get to anywhere close to market expectations of $40 billion-$50 billion inflows by the time the window closes at the end of September, the report said.

Listing out the issues banks may be dealing with mobilising FCNR deposits, Barclays said that implementation of leveraged structures for mobilising these deposits has appeared to be more complex than initially expected, and banks may have been cautious in extending such facilities, limiting inflow uptake. Another potential factor is the tenure of these deposits, it said. 

"While FCNR deposits are typically raised with maturities of 3-5y (years), the underlying deposits are generally subject to only a one-year lock-in, after which premature withdrawal may be permitted by the bank," it said. "However, the RBI swap itself cannot be unwound early, leaving banks with residual maturity mismatch risk if depositors exit before maturity," it added. 

Further, Non-Resident Indians may be viewing FCNR deposits as a less attractive option at a time when global equity market have surged, especially chip stocks, it said. 

BUGBEARS LINGER

The recent increase in oil prices since the resumption of hostilities between the US and Iran have added a layer of pressure on the rupee, Barclays said. It expects a further gradual depreciation for the rupee, with downside risks depending on the move in oil prices. 

"Our model analysis suggests that the INR remains one of the Asian currencies most exposed to higher oil prices and could come under renewed pressure if escalating US-Iran tensions trigger another leg higher in crude," it said. 

After the initial reprieve on the back of the central bank's announcement of a slew of measures to attract capital inflows last month and a peace deal between the US and Iran, the rupee has come under renewed pressure owing to the fresh hostilities in West Asia and jump in crude oil prices. The Indian currency has depreciated over 7% against the dollar so far this year. 

According to Barclays, the rupee's sensitivity to oil prices has increased in recent months, implying that oil-related shocks are having a larger impact on the currency than in the recent past. Brent crude prices have surged over 15% so far this month while the Indian unit has depreciated over 1.7% against the greenback. End

US$1 = INR 96.30

Reported by Pratiksha

Edited by Akul Nishant Akhoury

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