RBI's $127 billion FCNR(B) Scheme: Banks Scramble for Cover as Hidden Costs Mount
The Reserve Bank of India's special FCNR (B) deposit scheme pulled in about $127 billion from non-resident Indians — well over its initial $50 billion target. Banks are now scrambling to replace short-term borrowings with longer-term overseas funding, while critics say the true cost of the scheme could be enormous. The scheme, announced on 5 June and closed on 31 August, was designed to shore up forex reserves. But a thread by @sandeep_PT, with 67 likes, argues the RBI bears the risk of rupee depreciation on these deposits, making the hidden cost "very large." Banks offered unusually high interest rates, which will eventually fall on borrowers and shareholders. And the dollar inflows add huge rupee liquidity, forcing the RBI to absorb excess money — potentially raising government borrowing costs.
