Indian government recruits overseas Indians to bolster rupee stability

When your currency is under pressure and oil prices are surging, you call in reinforcements. India’s reinforcements just happen to be scattered across 150-plus countries.

The Reserve Bank of India launched a targeted campaign in June 2026 to attract foreign-currency deposits from the Indian diaspora, estimated at 35 to 37 million people worldwide. The centerpiece: a temporary facility that effectively eliminates hedging costs on Foreign Currency Non-Resident (Bank) deposits, known as FCNR(B) accounts. By early September 2026, the effort had pulled in a record $127 billion in these deposits, far exceeding initial expectations and providing a critical buffer for India’s foreign exchange reserves.

How the scheme works

FCNR(B) deposits allow non-resident Indians to park foreign currency in Indian banks without taking on exchange rate risk. The money stays denominated in dollars, euros, or other major currencies, and the depositor earns interest in that same currency.

The RBI’s new facility, launched on June 5, 2026, removed what had long been the biggest friction point: hedging costs. When Indian banks accept dollar deposits, they typically need to hedge their own currency exposure, and that cost gets passed along to depositors in the form of lower rates. By absorbing that hedging cost, the RBI enabled banks to offer interest rates of up to 7.5% on deposits with maturities of three to five years.

By early August, inflows had already reached roughly $40.8 billion. A month later, that figure had tripled to over $127 billion, setting a new record for FCNR(B) deposits.

The political push behind the numbers

Prime Minister Narendra Modi personally appealed to overseas Indians at a Paris event in June 2026, encouraging them to invest in India’s growth story. Finance Minister Nirmala Sitharaman followed up by directing state-owned banks to improve their outreach to potential diaspora depositors.

India has played this card before. During the 2013 taper tantrum, the RBI ran a similar FCNR(B) campaign that raised between $26 billion and $34 billion. The 2026 version has already generated roughly four times as much.

The scale difference partly reflects the diaspora’s growing wealth. Remittances from overseas Indians in FY25-26 exceeded $135 billion to $155 billion, making India the world’s largest recipient of remittance flows by a wide margin.

Reserves are up, but the rupee is still struggling

The inflows have done their job on the capital account side. India’s capital account recorded a surplus of $27.7 billion in July 2026, successfully avoiding what could have been a deficit.

The rupee, however, has not gotten the memo. The currency has declined more than 6% against the US dollar during 2026, hovering around 95 to 96 per dollar. Oil prices are the dominant variable in India’s current account, and India imports roughly 85% of its oil, making it uniquely exposed to energy price shocks among major economies.

There’s also a structural question embedded in the FCNR(B) strategy. These deposits are essentially dollar-denominated liabilities for the Indian banking system. They bolster reserves today, but they create future outflow obligations when depositors redeem at maturity. During the 2013 episode, the RBI managed this risk reasonably well, with deposits maturing into a period of relative rupee stability.