The RBI's $68 Billion Problem: Who Pays When the Rupee Falls?
India needs dollars. The price of getting them has never been higher.
India faces a $68 billion balance of payments deficit in FY27, driven by a weak rupee, surging oil prices, and $20.6 billion in FPI outflows. The RBI is reportedly considering a 2013-style FCNR(B) swap scheme to attract dollar inflows — but with US interest rates far higher today, the cost of running that playbook has never been steeper. The RBI may have to absorb the currency risk itself.
Picture this. You run a lending desk. A borrower walks in and says, "Give me a loan, but you take all the currency risk, and also offer me rates I can't find anywhere else in the market." You'd probably show them the door. But what if that borrower is India itself, and the lender is the Reserve Bank of India? Then you don't have the luxury of saying no.
That's essentially the situation the RBI finds itself in right now. With the rupee tumbling to record lows and dollars flowing out faster than they're coming in, India's central bank is reportedly dusting off a crisis-era playbook — one that would require it to absorb the very foreign exchange risk that makes overseas investors nervous in the first place.
How We Got Here
The rupee had already shed about 5% through calendar year 2025, recording its worst fiscal-year fall in 14 years in FY26. Then in 2026, the currency retreated another 5.5%. The West Asia conflict spiked oil prices, and for India, an economy that imports roughly 85% of its crude oil needs, that was a direct hit to the trade balance. The rupee slid to an all-time low of ₹95.33 per dollar. Foreign portfolio investors pulled out $20.6 billion in equity in 2026 alone, exceeding all of 2025's outflows combined.
The RBI had already burned through significant firepower defending the currency. Its reserve buffer had fallen from a peak of $728.5 billion (week ended February 27, 2026), and the effective foreign currency asset pool, stripping out gold, stood at just $449 billion by March 2026. Alarming enough to prompt serious conversations behind closed doors at Mint Road.
The $68 Billion Funding Gap
Economists at Nomura put a hard number to what India is staring at: a balance of payments deficit of roughly $68 billion for FY27. That's the gap between all the dollars coming in and all the dollars going out.
"We are pencilling in a large balance of payment deficit of around $68 billion in FY27. Unless the global backdrop changes to lower oil prices, this is the gap that will likely need to be plugged via the forex deposit scheme being considered," Nomura's Sonal Varma said.
The arithmetic has flipped from the comfortable surpluses of recent years. Oil is expensive, FPI confidence is shaken, and global capital is retreating to US assets as the Federal Reserve holds rates elevated. That $68 billion hole has to be filled somehow.
Three Options, One Familiar Problem
According to a Reuters report on May 4, two options are on the table: reviving a scheme similar to the 2013 FCNR(B) swap window, and eliminating the 5% withholding tax on overseas government bond investors. A Bloomberg report the following day added a third, suggesting something similar to the India Millennium Deposits of 2000, where the State Bank of India had issued foreign-currency bonds directly.
This isn't India's first rodeo. The country has a well-worn history of special dollar-raising schemes during currency stress: Resurgent India Bonds in 1998, India Millennium Deposits in 2000, and the FCNR(B) swap window in 2013. The 2013 scheme was the most successful. The RBI offered banks a subsidised swap rate of 3.5% per annum to absorb their exchange risk, well below the market hedging cost of 6 to 7%. Around $26–34 billion flowed in over the window period. The rupee stabilised.
Why 2026 Is a Different Beast
Here is the uncomfortable part. Pulling off the 2013 trick today is significantly more expensive because US interest rates are far higher than they were then.
In 2013, the Federal Funds Rate was close to zero. An NRI sitting on dollars abroad was earning almost nothing. India only needed to offer a marginally better deal. Today, an NRI can earn a competitive return simply by keeping money in a US Treasury bill or money market fund. For India to beat that, banks must offer genuinely higher rates, and to keep those rates viable without burning bank margins, the RBI needs to offer a much larger subsidy through its swap window.
Nomura flagged this directly: "This may mean that the structure of any new scheme being considered will need to be modified to account for higher dollar deposit rates globally and lower domestic deposit costs. This may require a higher subsidy from the RBI to make the scheme attractive for banks."
Bank of Baroda's chief economist Madan Sabnavis added a more fundamental concern. For such bonds to work for Indian banks, the yield must be higher than US deposit rates but still lower than domestic Indian deposit rates. "Otherwise, it may not be viable especially as exchange risk is taken on by the banks," he said, adding that the exchange risk is something the government or RBI has to absorb. He also raised a point that often gets overlooked: if remittances and NRI deposits aren't rising, the diaspora may simply not have the financial capacity to participate, however attractive the scheme looks on paper.
Who Actually Bears the Risk
When the RBI runs a swap window, it writes an insurance contract. A bank raises dollars, converts them to rupees, deploys them domestically, and at maturity, swaps back to dollars at a pre-agreed rate with the RBI. If the rupee has depreciated in the interim, which is almost certain, the RBI absorbs the loss. It pays the bank more rupees per dollar than it originally received.
That cost doesn't vanish. It reduces the RBI's annual surplus transfer to the government, meaning either higher borrowing or lower spending somewhere down the line. Every dollar brought in via subsidised swaps carries an implicit price tag on Indian public finances.
That said, the alternative is arguably worse. A $68 billion BOP deficit without fresh dollar inflows means a far sharper rupee fall, more expensive oil imports in rupee terms, a wider trade deficit, and a self-reinforcing spiral. The RBI is choosing between a quantifiable cost now and a potentially much larger unquantifiable one later.
What Happens Next
No final decision has been announced, and Mint Road has not publicly confirmed any programme. The fact that these discussions leaked via Reuters and Bloomberg sources is itself a form of intervention. Signalling that tools exist can slow panic before they are even deployed.
But the deeper question isn't whether the RBI can do this. It is whether India uses the time any such scheme buys to fix the structural vulnerabilities underneath. Reducing crude import dependence, building export competitiveness, deepening bond markets so foreign capital finds India attractive without needing special concessions.
A swap window can stabilise the rupee for a few years. Only structural reform can fix it for a decade.