India has demonstrated it can mobilise foreign currency at scale through its banks and its diaspora. What matters now is not how much RBI has attracted, but the following:
What does the mobilisation represent?
What kind of dollars have arrived?
Who ultimately carries the currency and funding risk?
What remains on India’s balance sheet once the incentive that drew them in disappears?
The 2013 taper tantrum was a monetary shock from Washington. The 2026 shock is different in kind, driven by the US war on Iran and firmer oil prices, rather than by capital flight alone. India’s reserves, which had peaked near $728 bn in February, fell about $60 bn by late June. RBI responded with a familiar instrument – subsidised dollar-rupee swaps against fresh 3-5 year FCNR(B) deposits. But the theatre has changed.
US rates were near zero in 2013. Treasury yields now sit near 4.5%. So, the differential available to depositors is far narrower. Banks have, nevertheless, offered rates near 6%, and to some smaller lenders above 7%.
An orchestra works because different sections perform different functions. So does the 2026 arrangement. The diaspora supplies deposits. Commercial banks mobilise them. Offshore branches provide leverage. Treasury desks turn borrowings into fixed-rate economics through swaps. And GIFT City serves as the venue where much of the pricing and structuring is done. In this orchestra, RBI is the conductor, setting the incentive and assuming the currency risk that ‘ordinary’ FCNR(B) was designed to leave with the banks.
Arranging players is itself the act. The central bank did not merely announce an incentive, it designed the market. That is what distinguishes the window from an ordinary deposit campaign.
The June clarification allowing banks to lend against FCNR(B) balances transformed the economics of the deposit itself. The leverage is left to individual banks. SBI has reportedly settled on 9x leverage facility for HNI NRIs making deposits of $1 mn and above. Foreign banks have reportedly gone higher.
The return is manufactured principally by leverage rather than by an unusually large deposit spread. The bank lends against the deposit it holds. The structure is circular, the deposit providing collateral, the loan multiplying the return on depositor’s equity. The commercial test, therefore, extends beyond the depositor.
It tests the bank’s entire international franchise. The scarce asset is not the deposit, but the architecture that turns it into a profitable transaction.
Remember, the diaspora is not one homogeneous pool. The US presents tax and disclosure frictions. Gulf jurisdictions offer considerably greater mobility and drew an estimated 70-75% of 2013 inflows. Bankers expect a similar share now.
Given tax treaties, reporting rules and deductibility that shape the transaction, a dollar held in Dubai is not economically identical to one held in New Jersey once placed into a leveraged structure. It looks identical on a bank’s screen. In the depositor’s hands, it is not.
RBI’s role is more complicated than that of a conventional central bank providing a market incentive. The at-par swap shifts much of the currency risk that FCNR(B) was designed to place with commercial banks back to the central bank.
Calling the exposure a subsidy would be too simple, since the foreign assets held against it also gain rupee value as the currency depreciates. The true concession is the forward premium forgone, net of what those assets earn. It need not appear in the budget at all, but only later, through a reduced surplus transfer to the government.
History explains why the arrangement matters. FCNR(A) placed exchange rate risk on the official sector. Losses in the early 1990s forced its withdrawal from 1994. FCNR(B), introduced in 1993, shifted that risk to commercial banks instead. The 2026 swap reverses part of that allocation while retaining the FCNR(B) legal shell. The instrument is familiar. Allocation of risk is not.
The mobilised total sits beside a far smaller rise in foreign currency assets, which grew by only about $7.6 bn over the same period. The divergence suggests that at least part of the inflow may have been used to reduce existing forward positions rather than translate directly into an equivalent increase in reported foreign currency assets.
The window remains open until August 31. But the headline number is no longer the interesting question. A dollar attracted through leveraged deposits is different from a dollar arriving as unleveraged diaspora savings. Both enter the same headline. Their economic character is different. The window will close, deposits will mature, swaps will unwind. Conductors and players will change. But the composition will outlast the performance.