RBI Governor Sanjay Malhotra Defends Early Closure Of FCNR(B) Swap Window, Calls Move A ‘Calibration’

Reserve Bank of India (RBI) Governor Sanjay Malhotra has defended the central bank’s decision to bring forward the closure of its special FCNR(B) swap window, saying the move reflected changing market conditions rather than a reversal in policy.

In an interview with the Financial Times, Malhotra described the decision as “well-thought-out, calibrated, prudent and data-driven”. He said the RBI’s approach demonstrated its willingness to adjust policy in response to evolving economic and financial conditions.

RBI Advances FCNR(B) Swap Window Deadline

The RBI has moved the deadline for banks to mobilise fresh Foreign Currency Non-Resident (Bank), or FCNR(B), deposits under the special facility to August 31, 2026, from the earlier September 30 deadline.

As of August 13, banks had mobilised $52.3 billion through FCNR(B) deposits under the facility. Total inflows through the broader foreign exchange-related facilities stood at around $56.8 billion.

The early closure came after foreign currency inflows exceeded the RBI’s initial expectations. The central bank expects its three related schemes—FCNR(B), external commercial borrowings (ECBs) and overseas foreign currency borrowings (OFCBs)—to attract at least $80 billion.

Malhotra said the strong inflows reflected India’s robust macroeconomic fundamentals and could further strengthen the country’s balance of payments.

Malhotra Rejects ‘U-Turn’ Criticism

The RBI Governor’s comments come amid criticism over his remarks following the August 5 Monetary Policy Committee meeting, when he had indicated that there was no proposal to bring forward the FCNR(B) deadline.

Malhotra pointed to his use of the words “as of now”, arguing that the statement reflected the situation prevailing at that time. He added that the RBI had also indicated that stakeholders would be informed if circumstances changed.

According to Malhotra, continuing the swap facility for longer would provide diminishing benefits as each additional dollar attracted through the scheme would offer less incremental value while increasing the cost of sterilising the resulting liquidity.

He said banks and other stakeholders were given more than two weeks to prepare for the revised August 31 deadline.