RBI May Incur $10.6 Billion Cost as Diaspora Deposit Drive Sees Unexpected Record Inflows

India's recent diaspora deposit initiative has resulted in record-breaking inflows, potentially costing the Reserve Bank of India (RBI) $10.6 billion, as per The Business Standard news report.  

This surge in deposits presents challenges for the central bank's liquidity management. 

Impact of Record Diaspora Inflows on RBI 

As per the news report, The RBI's special deposit programme attracted more funds than anticipated, with inflows expected to increase further when overseas foreign-currency debt and external commercial borrowings are considered. This influx was initiated to protect the rupee from depreciating after it hit record lows. 

Under the Foreign Currency Non-Resident (Bank) or FCNR(B) programme, the RBI agreed to shield banks from losses if the rupee weakens. This involves a currency-swap facility estimated to cost 3%-3.5% annually. Additionally, the RBI must manage the extra liquidity as banks convert the raised dollars into rupees. 

Financial Implications and Strategies 

The combined operations could cost up to ₹1.2 trillion ($12.7 billion) over 5 years. However, the RBI does not view this as a significant concern, as the final cost will depend on how the dollar proceeds are invested. India's foreign-exchange reserves, currently around $730 billion, are expected to provide a sufficient buffer. 

One potential risk is the impact on the RBI's dividend to the government, which was a record ₹2.87 trillion in May 2026. A reduction in the dividend could affect the government's budget targets. 

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Investment Opportunities and Cost Mitigation 

The RBI could mitigate some costs by investing the dollars abroad. For instance, investing in 10-year US Treasuries with a yield of about 4.7% could generate more interest than the hedging expenses. On a net basis, the annual cost could be as low as ₹10,000 crore, or even marginally positive for the RBI. 

Conclusion 

India's diaspora deposit drive has resulted in unexpected inflows, potentially costing the RBI $10.6 billion. The central bank's strategies to manage liquidity and investment could influence the final financial impact. 

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