Reserve Bank of India Governor Sanjay Malhotra said Friday the central bank will generate net revenue from its record $136 billion foreign-currency deposit drive, directly contradicting analyst estimates of a potential $10.6 billion loss over five years.
Malhotra stated the RBI will deploy the dollars in overseas government securities to earn interest income. "Net, net, it will only result in additional revenues, additional income," he said in a CNBC-TV18 interview.
The $136 billion tally includes $127 billion from India's Foreign Currency Non-Resident (FCNR(B)) deposit scheme alone—exceeding original projections—plus foreign currency loans extended through December that can be hedged at the RBI's expense.
The carry trade logic is straightforward: if the RBI earns higher yields on foreign government bonds than it pays on rupee-denominated liabilities, the margin is profit. The cost argument assumes the opposite—that funding costs exceed asset returns. Malhotra's assertion implies the RBI has confidence in its yield curve positioning.
The inflows have flooded the rupee money market with excess liquidity. This risks compressing borrowing costs across the banking system, complicating the RBI's efforts to maintain its policy stance. Banks are projected to deploy the FCNR(B) flows over three to four months, extending the liquidity pressure.
To offset the surge, the RBI announced a ₹5 trillion liquidity drain via a 26-day mop-up bid. Malhotra cited Open Market Operations, currency swaps, variable reverse repo auctions and bond sales as available tools. "Nothing is off the table," he said.
Malhotra characterized India's first-quarter growth as robust, citing contributions from private consumption, investment and exports.
