The RBI seems to be back in the book it wrote in 2013 and the preliminary data shows the current round of foreign currency enticing is even more successful than the first. SBI Research now believes that India may attract $80-85 billion of the foreign exchange inflows through the RBI's special FCNR(B) swap window, of which $65-70 billion will be received as fresh non-resident deposits by the end of the scheme's tenure. The interesting aspect of the projection is the speed at which the banks have raised this money in the first 45 days of this scheme, compared with the amount they raised in the entire three-month long taper tantrum episode twelve years ago, when Raghuram Rajan was trying to save a rupee in freefall.

The mechanics elucidate why banks are moving so rapidly. The RBI had issued the circular on June 8 that will allow any authorised dealer bank to receive a fresh FCNR(B) deposit of three to five years for which it will be able to exchange dollars directly with the RBI at a fixed reference rate while the currency risk would be borne by the RBI, which earlier had to hedge in the open market at a cost of about 3-3.5% per annum. Remove that hedging charge and banks have plenty of space to offer depositors a lot more. Rates that were languishing in the 2-4% band on dollar deposits have jumped to between 5.5% and 7.1% at some lenders, with State Bank of India offering 5.5% on three-year money and 5.75% on four-year deposits through its GIFT City desk, and at least one private bank advertising a "FCNR Plus" product touching 6.75%. Add to it the fact that these deposits are also free from cash reserve ratio and statutory liquidity ratio requirements till 30th September, and a bank can use all the money it raises instead of parking a portion of it with the RBI for free which is what has made the scramble this intense.

This is not occurring in isolation. By the end of July, the rupee was trading close to 96.5 versus the dollar, nearly a year ago when the rating was at 87, and up to 11-12% from a year ago. Some of that pressure is domestic: The Prime Minister's office sent out a public reminder to citizens to reduce their purchases of non-essential gold and their travel abroad, due to record gold imports through the spring. Brent crude has been trading at more than $100 a barrel for several weeks since Houthis attacked shipping vessels in the Red Sea through the Strait of Hormuz, and Washington's new round of tariffs, including a 10% duty on Indian products, linked to an investigation into forced labour, has brought an additional unknown into the trade equation. India's foreign exchange kitty, standing at a high of about $728 billion back in February, had already dipped to about $690 billion by May, when the RBI started selling foreign exchange reserves to keep the currency steady. In that context, a $85 billion pot of money is more than just a nice to have it's almost a requirement.

It's a fair argument that this time is structurally different from 2013. In fact, the current account deficit has been shrinking instead of growing, falling to around $15 billion or 0.8% of GDP from the first half of this fiscal year, down from the year before when it stood at $131.8 billion or 1.3% of GDP and helped by a services surplus and remittances that, in the first half of the fiscal year, reached a record $135.4 billion, the largest in the world. External debt at about $746 billion is still in the reserve buffer and debt to GDP is around 19%. Such a smaller deficit and greater remittance inflows is a truly more robust starting position for Rajan than when he assumed the office, when the deficit was around 4-5% of GDP and foreign investors had little confidence in Indian assets.

But the doubter's skepticism should be reserved for the substance of the money, not the number. This batch of FCNR(B) deposits is by design, borrowed dollars with a maturity date of at least three to five years in the future and history has demonstrated what happens when a wall of them comes due at the same time, which is what they are about to do, this one between 2029 and 2031. The 2016 vintage of the 2013 vintage, with net outflow of about $20 billion, was enough to send the markets for a reassurance visit from the RBI that it had enough reserves to cushion the blow, and indeed, there was a visible reduction of forex assets in the coming weeks. A dollar deposit isn't direct investment to construct a factory, it's not portfolio capital running after earnings growth, it's more like a fixed-term loan, the rate of which is too good to pass up, and not always guaranteed to be renewed at maturity. Banking analysts monitoring the scheme have already noted that a "significant majority" of the deposits that will be paid off this month and next will be "rolled over" into the new window, but not necessarily new cash that will be deposited.

It's not the magnitude of the number that would make this episode special, but what happens to the dollars on the banks' books. With the exemption from the CRR and SLR, lending institutions can utilise the entire amount of the deposit for credit instead of parking part of it in their treasuries and if that liquidity is put to good use in productive credit instead of short-term treasury parking, the money of the diaspora is not only filling up a few years' gap in the reserves of the lenders, it becomes working capital for the economy which sorely needs it, at a time when exporters are facing new rates of tariffs imposed by the Americans and importers are facing a triple-digit price of oil. RBI has obtained some breathing space and a huge space at that. Whether that room is to be used for resilience or just to purchase some time for the next maturity wall in 2029 remains to be seen in either Mumbai or Washington.