DIVYARAJSINH JADEJA

@DIVUBHAJADEJA5

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Joined April 2013

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Parimal Ade

@AdeParimal

3 days ago

$127 billion of forex inflows sounds huge. But can RBI handle the eventual repayment pressure? I believe the answer is yes and the mechanism is actually quite sensible. Here’s the simple way to understand it. NRIs place dollars with Indian banks through FCNR(B) deposits. Banks can swap those dollars with RBI and receive rupees. So today, the flow is: NRI → Dollars → Bank → RBI RBI then holds those dollars and can invest them in safe dollar assets such as US Treasuries. When these deposits mature, the flow simply reverses: Bank → Rupees → RBI → Dollars → Bank → NRI This is important. Banks do not necessarily have to rush into the forex market later and buy billions of dollars at whatever exchange rate is prevailing at that time. The swap structure helps RBI manage that risk in an orderly way. Yes, there is a cost. The swap and hedging cost could be around 3%, potentially close to ₹36,000 crore on roughly ₹12 lakh crore of inflows. But RBI is not sitting idle on those dollars either. It can earn returns on the dollar assets it holds, which can help offset a meaningful part of that cost. So the real equation is not: “Huge inflows today = huge problem tomorrow.” It is: Dollar income earned minus Swap cost + liquidity management cost RBI will also need to maintain sufficient dollar liquidity as these deposits mature over the next few years. And that is exactly where strong reserve management, staggered maturities and liquidity planning matter. My takeaway is simple: This is not an unmanageable dollar burden. If managed prudently, RBI has enough tools to handle the maturity cycle without creating unnecessary stress in the forex market. For a country receiving large capital flows, this is a good reminder: The strength of a central bank is not just in attracting dollars. It is in managing their entry, use and eventual exit smoothly.