Forex Inflow Review: FM Nirmala Sitharaman to Meet PSU Bank Chiefs Today Over FCNR Deposits

Amidst a sharp decline in foreign currency inflows, Finance Minister Nirmala Sitharaman is set to hold a high-level review meeting today with the heads of Public Sector Banks (PSBs). The session is aimed at evaluating the progress of current foreign currency deposit drives and assessing the efficacy of recent regulatory measures designed to attract funds from Non-Resident Indians (NRIs) and Overseas Citizens of India (OCIs).

Addressing the Forex Inflow Crunch

The urgency of today’s meeting is underscored by a stark drop in foreign currency deposit flows. Official data reveals a massive contraction, with inflows plunging from $7.1 billion in the 2024-25 fiscal year to just $946 million in the current 2025-26 fiscal year. To stem this tide, the Reserve Bank of India (RBI) has proactively removed interest rate caps on new foreign currency deposits until September 30. This policy shift is intended to make Indian banking products more competitive globally and encourage the diaspora to repatriate funds.

Reducing Hedging Costs for Banks

Beyond interest rate liberalization, the RBI has rolled out crucial support for banks to mitigate the financial burden of managing these deposits. The regulator is now offering concessional foreign currency swap facilities for deposits with maturities of three to five days. By significantly reducing the cost for banks to hedge their foreign exchange risks, the government aims to incentivize lenders to aggressively market these deposit schemes. This structural support is expected to provide banks with the necessary confidence to build their foreign currency reserves without fear of excessive market volatility.

Boosting Capital Mobilization

The strategy also extends to boosting the country’s capital base through External Commercial Borrowings (ECBs). To further stabilize the currency market, the RBI has introduced a concessional swap facility for Central Public Sector Enterprises (CPSEs) to raise ECBs until September 30, 2026. Given that government-run companies typically mobilize between $10 billion and $12 billion annually through ECBs, this move is anticipated to be a major catalyst in improving the overall liquidity of foreign currency within the Indian financial system. Today's review meeting will be pivotal in determining how effectively these banking institutions are leveraging these incentives to shore up the nation's forex reserves.