Strong early response to swap window fuels $70 billion inflows hope

Foreign banks appear to have driven the early success of the RBI's swap scheme, say experts

The Reserve Bank of India’s (RBI’s) announcement that nearly $21 billion has been mobilised under its concessional swap facilities has exceeded market expectations, prompting analysts to raise expectations of total inflows to $60-70 billion by the time the window closes.

 

The RBI on Monday released data on inflows under the swap facilities for foreign currency non-resident bank -- FCNR(B) -- deposits, overseas foreign currency borrowings (OFCBs), and external commercial borrowings (ECBs) for the first time since the schemes were operationalised on June 8.

 

The data showed total inflows of $20.72 billion through July 17: FCNR(B) deposits accounted for $17.40 billion, while OFCBs contributed $1.97 billion, and ECBs under the swap facility added $1.34 billion. "The swap facility has seen strong interest and attracted steady forex inflows since June 8, 2026,” the RBI said.

 

The early response has eased concerns that the scheme was struggling to gain traction. “The data release puts to rest market concerns that the scheme had not worked so far and shows that, relative to 2013, mobilisation has been much stronger in the initial period,” said Rahul Bajoria and Smriti Mehra of BofA Securities.

 

They said inflows could be backloaded as more banks began deposit mobilisation only from mid-July, leaving the programme to attract more than $60 billion before it ends in around 11 weeks. Extrapolating the current trend using the 2013 deposit accretion pattern suggests inflows could reach around $80 billion, but “we stick to our more conservative estimate of $60-70 billion,” they added.

 

The bulk of the inflows ($17.4 billion) has come through FCNR(B) deposits, with analysts and bankers saying foreign banks have led mobilisation while participation from large private-sector lenders has so far remained limited.

 

“The RBI’s disclosure that nearly $21 billion has already been mobilised under the concessional swap schemes has clearly changed market expectations,” a senior private-sector banker said, adding, “Initial estimates were much lower, but overall inflows could now reach $50–60 billion.”

 

The banker said foreign banks may have accelerated early mobilisation by offering high leverage to non-resident Indian customers, while private-sector banks could contribute more meaningfully in the coming weeks.

 

“The key constraint remains country limits. Even large banks are facing challenges in securing substantial overseas funding lines. If the market is targeting around $60 billion, institutions such as HDFC Bank and SBI will need to contribute meaningfully,” the banker said.

 

DBS Bank said the reported FCNR(B) inflows likely include both renewals and fresh deposits, explaining the push by officials towards boosting incremental mobilisation.

 

It said higher global dollar interest rates have narrowed spreads despite the lucrative swap terms. Fresh inflows have also been slowed by unfavourable tax treatment of interest income in some jurisdictions and lengthy onboarding processes.

 

“Hope is that, akin to the experience in 2013, the scale of deposits will pick up sharply in the second half of the available timeframe (the FCNR(B) scheme ends in September and the ECB in December) as compliance processes are completed, with our forecast at cumulative $45-50 billion under these windows,” the report said. 

 

Macquarie Research’s report said its channel checks suggest that foreign banks had played a particularly active role, with some reportedly offering leverage of up to 19 times. Unlike the 2013 scheme, several foreign banks are using their own balance sheets to support mobilisation rather than relying primarily on leverage, suggesting broader participation. The report cautioned that it was too early to predict final inflows because mobilisation may not continue at the initial pace.

 

“Nevertheless, the current run rate indicates aggregate inflows should finish comfortably above the levels initially feared by the market. Strong foreign-currency mobilisation should ease domestic liquidity conditions, improve funding visibility and reduce near-term pressure on banks' balance sheets,” it said.

 

Suresh Ganapathy, managing director and head of financial services research at Macquarie Capital, said FCNR(B) deposits are not “cheap deposit” for banks. “The RBI only takes care of the principal. So, for a bank that is offering 6 per cent, the effective cost, including the interest swap cost, is 6.5 per cent or more, and that goes up further on insurance. Today, one-to-three-year retail term deposit money is coming at 6.5 per cent,” he said. The main advantage is that banks do not have to maintain cash reserve ratio and statutory liquidity ratio against FCNR(B) deposits, making them attractive if lenders have profitable deployment opportunities, he added.

 

Large private-sector banks echoed similar concerns during earnings calls over the weekend, saying tax disadvantages in the US, Europe and other markets, restrictions on leverage in some jurisdictions, and dependence on overseas lenders for funding could cap mobilisation.

 

HDFC Bank Managing Director and Chief Executive Officer Sashidhar Jagdishan had earlier said that the initial estimates of a $60-80 billion addressable market were being revised lower, with total FCNR(B) mobilisation expected at around $50-55 billion under the scheme.