Record Banking Liquidity Hits India Amid Dollar-Rupee Swap Facility
India's banking system has seen a sudden surge in liquidity, reaching a record high of Rs.11 trillion in the first week of September 2026, according to Bloomberg data.
This excess liquidity is largely due to the RBI's special dollar-rupee swap facility linked to FCNR (B) or Foreign Currency Non-Resident (Bank) deposits and other overseas borrowings.
The scheme was introduced to stabilize the rupee amid pressure from foreign investor outflows and high crude oil prices. By August 31, 2026, banks had mobilized $127.2 billion through FCNR(B) deposits.
When banks sell these dollars to the RBI, they get paid back in rupees, which can then be used for lending and investment. However, much of this liquidity will drain out as these deposits mature over the next three to five years.