Sep 15, 2026 14:43 pm IST

Opinion | India's Dollar Windfall Has Now Created A Rs 15 Trillion Problem

Deepanshu Mohan, Ankur Singh Deepanshu Mohan Columnist Ankur Singh Columnist

Deepanshu Mohan Columnist

Ankur Singh Columnist

The recent surge in foreign currency deposits into Indian banks was, by most measures, a policy success. India has spent much of the past decade building a larger external buffer against the volatility that periodically unsettles emerging markets, including sudden capital outflows, a weakening currency, and deteriorating global risk appetite. The mobilisation of non-resident deposits was intended to add another layer to that protection.

It worked rather well. Banks raised roughly USD 128 billion through overseas deposits, far exceeding initial expectations. Much of this foreign currency was subsequently swapped with the Reserve Bank of India for rupees. The arrangement strengthened the country's forex position and allowed banks to access domestic currency without having to source it elsewhere.

But central-bank balance sheets have a habit of ensuring that every successful intervention has a second-order consequence.

The dollars can now be safely parked in India's external financial architecture. The rupees issued against them, however, are in circulation in the domestic banking system. The core liquidity surplus is estimated at Rs 14-15 trillion, which is sufficient to affect the conditions in the money markets and is no longer a normal fluctuation.

The Other Side Of Dollar Windfall

The RBI's recent 30-day variable rate reverse repo (VRRR) operation to absorb Rs 7 trillion was a foretaste of the challenge. The banking system is widely touted as being flush with liquidity, but bids from banks came in for just about Rs 2.59 trillion. This was especially remarkable,........

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