The Reserve Bank of India has mobilised a record $127.23 billion through foreign-currency deposits under a special central bank programme aimed at strengthening the country's foreign-exchange liquidity.

This significant inflow is largely attributed to the overseas Indian community, which has been playing a crucial role in supporting the economy during periods of market stress.

August 31, foreign currency non-resident

As of August 31, Foreign Currency Non-Resident (Bank), or FCNR(B), deposits accounted for $127.226 billion in inflows, according to the RBI.

The programme, launched on June 8, was originally scheduled to remain open until September 30 but was closed a month ahead of schedule due to the strong response from banks and non-resident Indians.

FCNR(B) deposits are fixed-term deposits held in foreign currencies, with the principal and interest repaid in the same currency, allowing non-resident Indians to park their foreign-currency funds with Indian banks without taking direct exposure to rupee exchange-rate fluctuations.

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The inflows give Indian banks and the RBI a larger pool of foreign currency to manage external pressures and support liquidity in the foreign-exchange market, particularly during periods of heightened rupee volatility.

Private-sector lender ICICI Bank reported mobilising $17.88 billion through FCNR(B) deposits up to August 31, while loans provided a total of $63 billion under the RBI measures.

The programme aimed at strengthening India's external-sector position and improving foreign-exchange liquidity amid global uncertainty, absorbing hedging costs for banks mobilising FCNR(B) deposits and allowing them to lend against the funds.

Overseas foreign-currency borrowings contributed another $5.26 billion, while external commercial borrowings brought in $3.891 billion, according to provisional RBI data.

The latest mobilisation is reminiscent of India's response to the 2013 "taper tantrum", when the RBI introduced a special FCNR(B) swap scheme to attract foreign-currency deposits from overseas Indians as the rupee came under severe pressure following the US Federal Reserve's plans to reduce its monetary stimulus.

The 2013 scheme mobilised around $26 billion in nearly three months and was followed 23 billion.

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Foreign-currency assets received through the latest swaps will be reflected as foreign-currency assets on the RBI's balance sheet, potentially adding to the country's foreign-exchange reserves.

India's forex reserves rose 422 billion to a record $729.328 billion in the week ended August 21, according to the latest RBI data.

The finance ministry said last week that the large-scale mobilisation of long-term non-resident deposits and institutional funding would strengthen India's external buffers while providing foreign-currency resources to banks and companies.

The record inflows came as India's economy showed resilience despite heightened global uncertainty, with GDP growing 7.8% in the April-June quarter, beating expectations and the RBI's 7% forecast for the period.