India Takes Fourth in Forex as the Rupee Slides

India’s foreign exchange reserves jumped $44.903 billion to $785.706 billion in the week ended September 4, the Reserve Bank of India’s largest weekly increase on record. The print was large enough to put India fourth in the world, ahead of Russia and behind China, Japan and Switzerland.

Most of the dollars did not arrive as a vote for the rupee. They arrived through a cheap swap for non-resident deposits that the central bank had already stopped taking, and the rupee still closed weaker on Friday, September 11, at 95.56 per dollar.

A Record Weekly Jump That Did Not Calm the Rupee

The RBI released the week-ended September 4 figures on Friday, September 11. Foreign currency assets, the bulk of the stockpile, rose $47.498 billion to $648.168 billion. Gold holdings fell $2.594 billion to $113.816 billion as the metal slipped 0.56 per cent to $4,429 an ounce. Special drawing rights eased $4 million to $18.806 billion. The IMF reserve position rose $2 million to $4.916 billion.

THE WEEK’S RESERVE PRINT

• Total reserves: $785.706 billion as of September 4, up $44.903 billion on the week.
• Prior week: $740.803 billion after an $11.475 billion rise in the week ended August 28.
• Since March: up $94.599 billion from end-March, and up $87.438 billion from a year earlier.
• Gold offset: a $2.594 billion drop in gold cut into an even larger rise in foreign currency assets.

Those reserves of $785.706 billion sit on the RBI’s national summary table with the usual caveat that foreign currency assets, expressed in dollars, also move when the euro, pound and yen held in the pile change value. The headline still does what a ranking table cares about. It is a new lifetime high, and it is larger than Russia’s latest published stock.

How the FCNR Swap Put Dollars on the RBI’s Books

The Reserve Bank opened a concessional dollar-rupee swap on June 8 so banks could raise fresh three-to-five-year Foreign Currency Non-Resident (Bank) deposits, plus eligible external commercial borrowings and overseas foreign currency borrowings, and sell those dollars to the central bank at no hedge cost on the principal. By August 31 the dedicated programme had taken in $136.377 billion, of which FCNR(B) deposits were $127.226 billion and the borrowing legs $9.151 billion, according to the RBI’s FCNR and ECB inflow data.

HOW THE SWAP WORKED

• The offer: Banks took dollars from non-resident Indians, swapped the principal with the RBI, and received rupees they could lend at home.
• The incentive: The RBI absorbed the full hedge on principal, and the deposits were spared the cash reserve ratio and the statutory liquidity ratio.
• The rates: Some banks advertised more than 7 per cent on five-year dollar deposits that are tax-exempt in India.
• The close: Fresh FCNR(B) deposits lost eligibility after August 31, and banks had until September 11 to swap money already committed.

That is why a single reporting week could add $44.903 billion. Deposits gathered in late August were still being swapped in the week ended September 4, and committed trades could be completed through September 11. The ECB and overseas-borrowing legs remain open until December 31. The FCNR deposit window that did the heavy lifting is finished.

In August the RBI still sold $7.7 billion in the spot market to steady the rupee and bought none. The swap was filling the vault even as the desk was selling dollars into the market.

India Passes Russia by $16.7 Billion

Russia’s international reserves were $769.022 billion as of September 1, according to Bank of Russia figures. India’s $785.706 billion as of September 4 is $16.7 billion higher. China’s August stock was $3.438 trillion. Japan’s Ministry of Finance put Japan’s $1,207.5 billion reserves at the end of August, down $79.575 billion after Tokyo spent heavily buying yen. Switzerland remains third. India is fourth on those prints, with a gap over Russia that a quiet month could close.

THE RESERVE LADDER

The ranking is real on the published numbers and thin as a claim about lasting power. A large share of India’s new dollars are matched by a promise to sell them back to banks when the swaps mature. Spot reserves go up on day one. The forward book takes the other side.

The Five-Year Share of the FCNR Pile

RBI Governor Sanjay Malhotra, speaking on September 11, said the tenor mix was skewed long. Almost 48.50 per cent of the FCNR(B) deposits were for five years, about 42 per cent for three years up to four years, and about 9 per cent in the four-to-five-year window. Five-year money taken in June to August 2026 comes due in 2031. Three-year money starts rolling off in 2029.

The flows are certainly very robust. They reflect the strong belief and confidence of the investors worldwide in the extremely strong macroeconomic fundamentals of our country. It demonstrates at the same time that we can get foreign flows, capital flows, in a short period of time.

Sanjay Malhotra, Governor, Reserve Bank of India, on CNBC-TV18

He also rejected the idea that the free hedge was a gift the RBI would regret. Net-net, he said, the extra foreign currency can be put into overseas government securities and earn interest, and the right way to look at it is the country’s balance sheet, not only the central bank’s. He said the inflows had helped stabilise the forex market, supplied liquidity, and improved sentiment. The rupee’s path the same week sat beside that claim rather than under it.

RBI Absorbed the Hedge That Banks Paid in 2013

The last time India ran this play was during the 2013 taper shock. Banks then raised about $26 billion of FCNR(B) deposits, and about $34 billion across the special window, and they paid a concessional swap cost of 3.5 per cent a year. This time the RBI took the whole principal hedge. The 2026 FCNR(B) take of $127.226 billion is about five times the 2013 FCNR haul. The $136.377 billion total is four times the 2013 window.

THE 2013 AND 2026 WINDOWS

Malhotra had told reporters on August 5 there was no proposal to shut the FCNR(B) window early. Nine days later the RBI pulled the deposit deadline from September 30 to August 31 and the swap deadline from October 16 to September 11, citing the response. The governor had earlier said the three schemes together should bring in at least $80 billion. They cleared that floor by 70 per cent, and then the deposit tap was turned off.

US yields near 4.5 to 5 per cent also changed the NRI arithmetic. In 2013 an overseas borrower could fund a 5.5 to 6 per cent FCNR deposit with dollars that cost about 1 per cent. In 2026 that spread is thinner, which is why the free hedge and the CRR and SLR holiday did so much of the work. The money came because the product was cheap to manufacture, not because the rupee suddenly looked like a one-way hold.

Surplus Rupees Are the Other Side of the Trade

Every dollar swapped in is a rupee credited to a bank. The same success that rebuilt the foreign-currency pile left the domestic system heavy with cash. On the RBI’s own board, the policy repo rate is 5.25 per cent. Call money on September 10 traded between 4.40 per cent and 5.10 per cent, under that target. The cash reserve ratio is 3.00 per cent and the statutory liquidity ratio is 18.00 per cent, and the FCNR deposits raised under the scheme do not count toward the CRR.

Malhotra said on September 11 that nothing is off the table to pull the surplus out, including open-market operations and further swaps, and that a higher CRR would not be applied to those FCNR deposits. Some of the cash, he said, will leave on its own as currency in circulation rises, as the desk supports the forex market, and as banks’ reserve needs grow with credit. Until that happens, the RBI is managing two books at once: a larger dollar stock and a rupee glut it created to get there.

The far legs of the swaps are the delayed bill. When they mature, banks get the dollars back and the rupees reverse. A five-year heavy book pushes a large share of that unwind into 2031. It does not cancel it. The fourth-place ranking can be defended in the meantime with sales from the new pile, which is the point of having raised it. It cannot be read as dollars India earned on trade and kept.

Why the Rupee Still Closed Weaker

The rupee ended September 11 at 95.56 per dollar, down from 94.45, the fourth straight session lower. Dealers said Reserve Bank sales cut the losses. Since the West Asia conflict began, the rupee is down 4.79 per cent. In September it is down 0.4 per cent. Crude and US Treasury yields were the immediate weights, and a larger reserve number on a Friday afternoon does not reprice oil.

THE SCHEME CALENDAR

1. June 8, 2026: The concessional swap opens for fresh three-to-five-year FCNR(B) deposits, ECBs and overseas foreign-currency borrowings.
2. August 5, 2026: The governor says there is no plan to close the FCNR(B) window early.
3. August 14, 2026: The RBI pulls the FCNR(B) deposit deadline to August 31 and the swap deadline to September 11.
4. August 31, 2026: Fresh FCNR(B) deposits lose eligibility; inflows under the programme reach $136.377 billion, including $127.226 billion of FCNR(B).
5. September 4, 2026: The reporting week that takes reserves to $785.706 billion, up $44.903 billion.
6. September 11, 2026: The FCNR swap for committed deposits ends; the RBI publishes the print; the rupee closes at 95.56; the governor defends the cost and flags surplus rupees.

The ECB and overseas-borrowing facilities still run to December 31, so some extra foreign currency can still arrive by that route. It will not repeat the FCNR flood. The ranking India holds on the September 4 print is the ranking of a closed deposit window, a swollen forward book, and a rupee that used the same week to go on falling.