India's foreign exchange reserves reached a new all-time high of $729.328 billion during the week ended August 21, marking a substantial $12.422 billion increase from the previous week, according to the Reserve Bank of India (RBI). This latest surge follows the $9.905 billion increase recorded in the previous week ended August 14, when reserves had reached $716.907 billion. The central bank reported that foreign currency assets, the major component of reserves, grew by $9.482 billion during the latest reporting period, with the previous all-time high of $728.494 billion attained during the week ended February 27 this year. The RBI data, released on Friday, August 28, shows that foreign currency assets increased to $591.333 billion for the week ended August 21. Since March-end 2026, India's reserves have increased by $38.221 billion. The country's forex reserves have now risen for eight consecutive weeks, increasing by about $63 billion during this period and surpassing the previous record reached in February. As per The Times of India, these reserves are now comfortable to cover over 11 months of goods import and 94.0 per cent of the external debt outstanding as of March-end this year.
The substantial reserve buildup has been primarily driven by robust inflows into foreign currency non-resident (Bank) deposits mobilised by banks under the RBI's limited period concessional swap facility. Between June 8, 2026 (when banks started mopping up resources under the RBI's concessional swap facility) till August 21, 2026, FCNR (B) deposits saw an accretion of a whopping $65.397 billion, as per latest RBI data. Under the RBI's concessional swap facility, banks and public sector undertakings raised $4.860 billion (via overseas foreign currency borrowings) and $2.591 billion (via external commercial borrowings), respectively. The scale of the inflows prompted the central bank to bring forward the closure of its deposit hedging facility by a month to the end of August. The RBI received nearly $73 billion under these schemes between June 5 and August 21, including about $65 billion from non-resident Indian deposits. The value of gold reserves increased substantially by $2.801 billion to $114.218 billion during the week, while the special drawing rights (SDRs) component of reserves also increased by $112 million to $18.852 billion. As per The Economic Times, Indian banks have mobilised $65.4 billion in foreign currency non-resident (FCNR-B) deposits under the RBI's special forex swap facility, with total foreign exchange inflows through this specific window reaching $72.85 billion.
The current record reserves represent a dramatic transformation from India's 1991 balance-of-payments crisis, when the country's external reserves had dwindled to just $1.2 billion, barely enough to pay for a few weeks of essential imports. As per Business Standard, then Prime Minister P V Narasimha Rao stated on July 9, 1991, that "India's external reserves declined steeply, and we had no foreign exchange to import even such essential commodities as diesel, kerosene, edible oil, and fertiliser." The crisis was triggered by the oil price shock of the 1970s and compounded by the extremely tight monetary policy followed by then US Federal Reserve Chairman Paul Volcker, with the federal funds rate hitting a high of 22 per cent in the early 1980s. The RBI executed a two-step devaluation on July 1 and 3, 1991, which cumulatively reduced the rupee's value by 18 per cent, followed by other measures including pledging gold to mobilise funds. The transition from the fixed exchange rate regime to market-determined pricing began with the Liberalised Exchange Rate Management System (LERMS) in 1992, moving to a unified market-determined system by 1993, and India accepting Article VIII obligations of the IMF in 1994.
The record rise comes after India introduced a series of measures in June to attract overseas dollar inflows and strengthen the country's balance of payments. The measures included discounted hedging facilities for overseas dollar inflows by state-run firms and banks, along with a free-of-cost hedging facility for banks to raise overseas foreign currency deposits. These measures have proven effective in attracting foreign currency inflows and strengthening India's forex position. The RBI received nearly $73 billion under these schemes between June 5 and August 21, including about $65 billion from non-resident Indian deposits. The measures have been so successful that the RBI announced an early end (August 31 against the original announcement of September 30, 2026) to the concessional swap facility. However, bankers told Reuters that the RBI's frequent interventions in the foreign exchange market to support the rupee have likely offset the impact of some of the overseas dollar inflows. Amit Pabari, MD at CR Forex Advisors, underscored that the build up in forex reserves isn't accidental, with RBI's measures (introduction of a special USD-INR Forex Swap facility covering FCNR(B) deposits, ECB and OFCB inflows on June 08, 2026) pulling in $72.848 billion till August 21 alone. As per The Economic Times, reserves have increased by $48 billion since the scheme was announced on June 5, though the full $72 billion in gross inflows will not necessarily be reflected one-for-one in India's foreign exchange reserves, as some dollar flows may be used by the central bank to support the rupee through spot market intervention or reduce outstanding forward liabilities.
Economic experts emphasize that while the record forex reserves improve near-term stability, structural challenges remain. Sharma from Infomerics Ratings noted that deposit-led inflows raise external liabilities and may reverse when incentives expire or global yields change. The RBI's dollar absorption also creates domestic liquidity-management costs. However, he emphasized that the reserve accumulation materially strengthens India's external shock absorber, giving the RBI capacity to smooth disorderly rupee depreciation and finance essential imports during oil-price or geopolitical shocks. The rupee strengthened by 7 paise to trade at 95.64 against the US dollar during early trade on Monday (August 24, 2026), supported by a softer US dollar, though simmering geopolitical tensions kept the currency from making stronger gains. The previous record forex reserve level of $728.494 billion was reached in the week ended February 27, but geopolitical tensions that followed led to several weeks of decline in reserves as the rupee came under pressure and the RBI intervened in the forex market through dollar sales. As per Business Standard, the RBI's core philosophy remains largely unchanged: It allows markets to determine the direction of the currency, while intervening to prevent disorderly movements, with the central bank likely to persist with gradual liberalisation of the capital account.
