India's foreign exchange reserves increased by $6.1 billion during the week ending July 24, bringing the total to $682.3 billion, according to data released by the Reserve Bank of India (RBI). India maintains one of the largest foreign exchange reserve positions among emerging market economies, giving the central bank substantial capacity to manage currency stability.

The growth was driven primarily by inflows from the RBI's Foreign Currency Non-Resident (Bank) [FCNR(B)] deposit scheme](https://economictimes.indiatimes.com/topic/rbi-fcnr-b-deposit-scheme), which allows non-resident Indians to maintain term deposits in foreign currency denominations at Indian banks. These deposits are denominated in currencies such as the US dollar, the British pound, the euro, and the Japanese yen.

Gold reserves also rose by $1.3 billion during the reporting week. Gold forms a component of India's overall foreign exchange reserves, alongside foreign currency assets, special drawing rights (SDRs) held with the International Monetary Fund, and India's reserve tranche position at the IMF.

The increase in reserves came despite the RBI conducting dollar sales in the foreign exchange market. The central bank periodically intervenes in currency markets to curb excessive volatility in the rupee's exchange rate. According to the RBI's data on India's foreign exchange reserves, foreign currency assets — the largest component of total reserves — are expressed in US dollar terms and include the effect of appreciation or depreciation of non-US currencies such as the euro, the pound, and the yen held in reserves.

India's forex reserves had reached a record high of $704.89 billion in late September 2024, before declining in subsequent months due to a combination of valuation changes and RBI intervention to support the rupee. The current level places reserves roughly $22.6 billion below that peak. The RBI has historically used its reserves to buffer the economy against external shocks, manage the current account deficit, and maintain confidence in the country's monetary and financial stability. The reserve position is also a factor in sovereign credit assessments by international rating agencies.

The FCNR(B) scheme has previously played a notable role in bolstering India's reserves. In 2013, during a period of significant pressure on the rupee, the RBI had opened a special swap window for FCNR(B) deposits, which attracted substantial inflows and helped stabilize the currency. The scheme remains a tool through which banks can mobilize foreign currency funds from the Indian diaspora.

Source: Economic Times Markets