Reserve Bank of India ends foreign-currency deposit incentive a month early, blindsiding markets

When your incentive program works too well, you apparently just pull the plug. The Reserve Bank of India announced on August 14 that it would close its special forex swap facility for Foreign Currency Non-Resident (Bank) deposits, known as FCNR(B), to new deposits after August 31. The original deadline was September 30. That one-month truncation might sound minor, but the timing is what stings. RBI Governor Sanjay Malhotra said on August 5, just nine days before the announcement, that there were no plans to end the scheme early. Bankers and traders who took that at face value are now scrambling. A facility that worked almost too well The RBI launched the zero-cost forex swap facility on June 8, designed to attract foreign-currency deposits with maturities of three to five years. The goal was straightforward: shore up India’s external financial position and support the rupee amid persistent global economic pressures. By August 13, in just 67 days, the program had pulled in $52.3 billion through FCNR deposits alone. Add another $1.7 billion via external commercial borrowing swaps and $2.8 billion from overseas foreign currency borrowings, and the total inflows hit roughly $56.85 bill...