RBI has no plans to end FCNR deposit incentive scheme early, says governor

Reserve Bank of India (RBI) governor Sanjay Malhotra on Wednesday ruled out any proposal to prematurely withdraw the Foreign Currency Non-Resident (Bank), or FCNR(B), deposit incentive scheme, saying the special measures will continue until their scheduled expiry on 30 September.

Addressing a press conference after the central bank's monetary policy announcement, Malhotra said there was no proposal under consideration to end the scheme ahead of schedule.

The FCNR(B) initiative has attracted strong overseas inflows, with Indian banks mobilising around $36.7 billion in deposits as of 31 July. The additional foreign currency inflows have helped reinforce India's external sector and supported the rupee during a period of pressure from higher global crude oil prices.

The RBI governor said India's external position was already comfortable before the incentive measures were introduced and that the recent inflows had strengthened it further.

He also reiterated that the central bank does not target a specific exchange rate for the rupee, maintaining that the currency's value should be determined by market forces.

According to Malhotra, the RBI intervenes in the foreign exchange market only to curb excessive volatility or counter speculative pressures that could disrupt orderly market conditions.

The central bank has said it will continue to ensure that movements in the rupee remain orderly and do not become destabilised by speculative expectations.

The RBI's concessional zero-cost swap facility, introduced alongside the relaxation of deposit norms, will also remain available until September 30.

To encourage overseas deposits, the RBI had temporarily relaxed interest rate restrictions on fresh FCNR(B) deposits with maturities between three and five years, while also removing the interest rate ceiling on fresh Non-Resident External (NRE) deposits of three years and above.

The changes allow banks greater flexibility to offer more competitive returns to non-resident Indians, with the objective of attracting additional foreign currency and rupee deposits to strengthen India's foreign exchange reserves.

Large lenders, including State Bank of India and ICICI Bank, have emerged as major beneficiaries of the scheme, accounting for a significant share of the inflows mobilised under the special deposit drive.

With sustained overseas inflows, India's foreign exchange reserves are expected to cross the $700 billion mark in the coming weeks, providing additional support to the country's external finances.

With IANS inputs