India’s latest foreign exchange mobilisation exercise has produced an unprecedented response from non-resident Indians. Under the Reserve Bank of India’s special swap facility introduced on June 8, 2026, banks mobilised $127.23 billion in Foreign Currency Non-Resident (Bank) deposits by August 31. Including overseas foreign currency borrowings and external commercial borrowings, total inflows reached $136.38 billion.
The response confirms the importance of NRI deposits as a source of foreign exchange when India’s external sector comes under pressure. It also revives a policy instrument used repeatedly since the balance of payments crisis of 1991, when India first turned to its overseas population to mobilise foreign currency on a large scale.
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NRI bonds and the 1991 balance of payments crisis
The economic reforms of 1991 and the subsequent liberalisation of the exchange rate regime encouraged foreign currency transactions through official banking channels. Remittances through informal arrangements such as hawala, commonly known as tube money in Kerala, became less attractive as formal channels expanded. This helped create conditions for banks to mobilise more foreign currency deposits from non-resident Indians (NRIs).
Over the past three and a half decades, India has resorted to five major special bond or deposit mobilisation exercises to strengthen its foreign exchange position. The instruments have varied, but their principal objective has remained the same: to draw upon the savings of Indians living abroad when the country’s external financing requirements rise.
The first major initiative was the India Development Bonds scheme introduced by the State Bank of India in 1991, when the country was facing a severe balance of payments crisis. The five-year bonds were intended for NRIs and Overseas Corporate Bodies (OCBs). They mobilised approximately $1.6 billion, offering interest rates of 9.5% on US dollar deposits and 13.25% on pound sterling deposits. Tax concessions made them particularly attractive to subscribers.
The next major intervention came in August 1998, following the economic sanctions imposed by Western countries and Japan after India’s Pokhran-II nuclear tests. The State Bank of India issued Resurgent India Bonds (RIBs), denominated in US dollars, pounds sterling and Deutsche marks.
The five-year bonds attracted about $4.23 billion from investors across more than 30 countries within a month. When they matured in October 2003, their redemption involved a foreign exchange outgo of approximately $5.19 billion, including interest payments. The scheme demonstrated India’s ability to mobilise foreign currency from its diaspora despite adverse international conditions.
In 2000, the State Bank introduced India Millennium Deposits (IMDs), another five-year foreign currency instrument aimed at NRIs and OCBs. The scheme raised approximately $5.5 billion. It offered annual interest rates of 8.5% on US dollar deposits, 7.85% on pound sterling deposits and 6.85% on euro deposits. Principal and interest were fully repatriable.
The deposits matured in December 2005, resulting in a substantial foreign exchange outflow. The experience underlined an important feature of such schemes: foreign currency mobilised through special deposits must eventually be repaid, often with significant interest obligations.
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The 2013 taper tantrum and FCNR(B) deposits
India faced another serious external sector challenge in 2013, when US Federal Reserve Chairman Ben Bernanke indicated that the central bank could begin reducing its quantitative easing programme. The announcement triggered capital outflows from several emerging economies, particularly those with large current account deficits and substantial dependence on foreign portfolio investment.
India was classified among the so-called fragile five economies, along with Brazil, Indonesia, Turkey and South Africa. The rupee depreciated sharply, from around ₹54–55 against the US dollar in May 2013 to approximately ₹68–69 by August.
The authorities responded with monetary tightening, restrictions on gold imports and a special dollar swap window for public sector oil marketing companies. The RBI also introduced a concessional swap facility for fresh FCNR(B) deposits in September 2013.
Under the arrangement, banks could mobilise foreign currency deposits with maturities of three to five years and swap the dollars with the RBI at a fixed rate of 3.5% per annum. This reduced the cost of obtaining rupee funds against foreign currency deposits and encouraged banks to attract more NRI savings.
The FCNR(B) facility, together with a separate window for banks’ overseas borrowings, mobilised about $34 billion. These inflows helped rebuild foreign exchange reserves and restore stability to the rupee.
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Response to the 2026 swap facility
The RBI returned to this instrument on June 8, 2026, introducing a special US dollar-rupee swap facility for fresh FCNR(B) deposits with maturities ranging from three to five years.
The arrangement allowed banks to sell dollars to the RBI and agree to repurchase them at maturity. Unlike the 2013 facility, the 2026 swap was offered at par, with both legs of the transaction conducted at the same exchange rate. Banks were permitted to set deposit interest rates within the RBI’s prescribed ceilings. The facility therefore enabled banks to attract foreign currency deposits without bearing the usual exchange-rate hedging cost on the principal swapped with the central bank.
The response substantially exceeded earlier mobilisation exercises. According to the RBI’s provisional figures released on September 2, banks raised $127.23 billion through FCNR(B) deposits by August 31, 2026. Overseas foreign currency borrowings contributed another $5.26 billion, while external commercial borrowings added $3.89 billion.
Total inflows under the three facilities amounted to $136.38 billion. The response was sufficiently strong for the RBI to advance the closure of the FCNR(B) mobilisation window to August 31, although the borrowing facilities were scheduled to remain available until December 31.
The scale of the 2026 exercise is striking when compared with previous interventions. India Development Bonds raised $1.6 billion in 1991, Resurgent India Bonds about $4.23 billion in 1998, India Millennium Deposits $5.5 billion in 2000, and the two special swap windows in 2013 attracted approximately $34 billion.
The 2026 FCNR(B) mobilisation alone was equivalent to roughly 3.4–3.5% of India’s GDP, based on the GDP estimate used for this comparison. Previous special mobilisation exercises represented much smaller proportions of national output.
These figures establish the increasing capacity of India’s banking system to mobilise foreign currency from overseas Indians. They also reflect the considerable expansion of the Indian diaspora’s financial resources since the early 1990s.
There is, however, a cost to such exceptional mobilisation. The 2026 scheme provided banks with favourable swap terms, while the RBI assumed exchange-rate obligations under the forward leg of the transaction. The eventual economic cost will depend on exchange-rate movements, funding conditions and the treatment of the resulting liabilities. A definitive assessment will be possible only when these obligations are discharged.
Diaspora deposits and India’s external financing
The experience of the past 35 years establishes the importance of NRI deposits in managing foreign exchange shortages. India has repeatedly been able to mobilise substantial funds from overseas Indians during periods of external financial pressure.
These arrangements offer an advantage over emergency assistance from multilateral financial institutions because they do not involve policy conditionalities. Depositors participate on commercial terms, attracted by returns, tax treatment and confidence in the Indian banking system.
Nevertheless, diaspora deposits remain liabilities that must be serviced and repaid. Their contribution to exchange-rate stability must therefore be assessed alongside interest payments, the cost of concessional swaps and the foreign exchange outflows that will arise at maturity.
The 2026 scheme has demonstrated that India can mobilise foreign currency on a scale far greater than in earlier episodes. Its success in strengthening India’s external position will ultimately depend on how the RBI manages the resulting obligations over the next three to five years.