RBI Governor Says Forex Deposits Will Earn Additional Income

Mumbai: The Reserve Bank of India (RBI) governor Sanjay Malhotra has dismissed concerns that the record foreign‑currency deposit drive that garnered $ 136.4 billion has become a costly exercise, saying the inflows will instead boost the central bank’s income as the dollars are invested in overseas assets.

He also said that the central bank is open to using multiple tools to absorb the resulting surplus liquidity created by the inflows, ensuring that the monetary policy objectives are not undermined.

In an interview to a business news channel, Malhotra said, “I don't see it (FCNR (B) deposits) as a cost. Some people are saying it's a cost, etc. but we need to look at the balance sheet of the whole country of India, not at the balance sheet only of the Reserve Bank of India.”

“Net-net, it will only result in additional revenues, additional income for the RBI because you deploy any additional forex capital flows that you have in government securities abroad, and you earn an interest,” added Malhotra.

He said that the central bank has enough tools like open market operations, swaps, to suck out the excess liquidity that has been generated because of the forex measures.

Soon after, on Friday, the central bank announced a Rs one lakh crore open market operation (OMO) sale of government bonds, deploying one of its most potent tools to drain surplus liquidity from the banking system.

Separately, the RBI also announced an auction of 91-day, 182-day and 364-day Treasury Bills worth a combined ₹24,000 crore on September 16.

Banking system liquidity remained above Rs 10 lakh crore this week, pushing overnight rates below the RBI’s policy repo rate and making liquidity absorption increasingly important.

Malhotra had said some of the surplus would naturally ease as currency in circulation rises, foreign-exchange intervention absorbs rupees and banks’ reserve requirements increase alongside credit growth.

Malhotra also downplayed concerns about rapid expansion in gold loans. He said gold-backed loans across banks and non-banking financial companies (NBFCs) are now around ₹20 lakh crore, with NBFCs accounting for about ₹4 lakh crore.

He described the overall gold-loan book as still a single-digit share of the total credit book. He attributed high growth in gold loans to rise in gold prices and to rationalisation, clarification and simplification of its gold-loan rules.

“The value of gold itself has increased. So they become eligible, therefore, with the same collateral, they become eligible for a higher amount of loan,” he said.

He said the asset quality of gold-backed loans had improved for both banks and NBFCs over the past year.

“Gross NPA levels, you know, at less than one per cent, about 0.4–0.5 per cent and improving, does not suggest any overheating or matter of concern,” he said. According to him the current Loan to value levels provide a cushion against a fall in gold prices.

On economic growth Malhotra said India’s first-quarter expansion had been supported by private consumption, investment and exports.

He said the RBI was not entirely surprised by the stronger-than-expected data, as incoming corporate information had pointed towards firmer growth.

“The Indian economy has weathered this shock really well,” Malhotra said.