According to a Business Standard analysis, India's currency management strategy has evolved from basic spot market intervention to complex financial engineering. The Reserve Bank of India's escalation from spot market intervention to currency derivatives market intervention, and ultimately to Foreign Currency Non-Resident (Bank) deposits, has generated ₹136 billion in capital inflows between September 1, 2023, and December 16, 2024. However, this operation involves significant fiscal implications, with the central bank providing ₹2 trillion in contingent liabilities through forward guarantees to commercial banks. As per SBI Research, the argument that the FCNR(B) scheme entails a total cost of around ₹5 trillion is fallacious, as it effectively adds two costs arising from the same underlying exchange-rate exposure. The latest SBI Research report notes that "even though the regulator took a wise decision to curtail the scheme preponing its closure, the mammoth fund flows eclipsed the frontier calculations, with the needle immediately shifting to the cost(s) architecture as being pushed by the lobby of naysayers."
Latest market data shows the USD-INR exchange rate fluctuating between ₹91.5199 and ₹96.0477 over the past 30 days, with a 2.06% change representing the percentage difference between high and low rates. The current rate of 1 USD = ₹95.7837 INR demonstrates the ongoing volatility in currency markets, driven by factors including US Federal Reserve and RBI interest rate changes, inflation differentials, and global investor flows. This volatility underscores the challenges faced by India's managed exchange rate system, where central bank interventions attempt to smooth these natural market fluctuations.
Recent SBI Research analysis reveals significant financial gains from the FCNR(B) scheme, with the scheme attracting nearly $127 billion in deposits within just three months. According to SBI Research, the deposits, using a conservative and time-lagged credit multiplier of around 2.5, could result in additional credit of about ₹25 lakh crore. With an effective lending yield of around 7.5%, banks could earn a net interest margin of roughly ₹1 lakh crore annually, resulting in a notional gain of about ₹5 lakh crore over a five-year period. The RBI is also positioned to benefit substantially, with the central bank expected to earn nearly $20 billion over five years by investing around $100 billion in global assets yielding approximately 4% annually. The latest SBI Research report emphasizes that "the vaulting yields in dollar terms across global markets is hovering around 7.5-8.0 per cent for AAA rated corporates, given elevated borrowings by multiple actors, thus making these deposits at 6-6.5 per cent quite attractive."
SBI Research has provided a comprehensive breakdown of the FCNR(B) scheme's financial implications. The $127 billion deposits could generate approximately ₹1.8 trillion in annual income at a 7.5% yield, after accounting for interest outgo of around ₹75,000 crore annually. This results in an effective net interest margin of about ₹1 trillion annually, or ₹5 trillion over five years. The analysis estimates additional costs including ₹1.75 trillion in interest expenses and ₹3.18 trillion in foreign exchange depreciation based on a 5% annual rupee depreciation assumption. However, SBI Research notes that the currency exposure on the deposits has already been hedged through the special USD-INR swap facility, with the central bank expected to earn ₹50,000 crore surplus after accounting for the $15 billion hedging cost. The report argues that "the logic of the naysayers regarding hedging cost and adding back depreciation and ascribe it to a notional loss of ₹5 trillion is completely incorrect." It explains that "once the liabilities have been hedged by the counter parties (a back-to-back hedging is prevalent), the direction of the currency becomes immaterial on the due date of maturity and hence double counting the same exposure does not serve any meaningful interpretation."
As reported by Business Standard, recent research by Hande et al. (2026) indicates that natural USD/INR volatility without intervention is approximately 7.5% annually. The intervention apparatus generates realised volatility of roughly 5% annually, creating a 2.5 percentage point reduction in currency volatility that benefits a small subset of business users. The analysis argues that this fiscal cost, fiscal risk, distorted monetary policy, and constraints on financial development impact the broader economy through inferior economic growth, while the benefits are concentrated among a limited group of business users. SBI Research further notes that the additional liquidity from the scheme could support credit demand as festive-season demand, new loan sanctions and tax and GST outflows absorb liquidity, while banks continue to follow prudent risk management. The latest report emphasizes that "the gush of (unanticipated) liquidity is being portrayed as a challenging feat to the system, however, the festive season demand, credit disbursal pipeline, new advances sanctions, outflows on account of advance taxes and GST flows make it align to an elevated systemic liquidity, anchoring robust credit management by banks."
