FCNR(B) accounts let non-resident Indians hold fixed deposits denominated in foreign currencies. Inflows rose sharply following a special RBI currency-swap window available from June through August 2026, adding substantially to banks’ excess funds.

On Tuesday, the RBI held two variable-rate reverse repo, or VRRR, auctions, offering to absorb ₹6 lakh crore and ₹4 lakh crore separately. Under this arrangement, banks temporarily place funds with the central bank and earn interest, helping the RBI manage surplus liquidity.

Banks placed only ₹1.14 lakh crore in the seven-day operation, compared with almost ₹2.60 lakh crore in the overnight auction at 5.24 per cent. K. Arvind of Tamilnad Mercantile Bank attributed the preference for shorter placements to banks wanting cash readily available for lending opportunities. Another one-day auction, targeting ₹5 lakh crore, was scheduled for September 2, 2026.

Other possible absorption tools include government-bond sales through open market operations and, as a last resort, a higher cash reserve ratio. CRR requires banks to maintain a share of deposits with the RBI without interest. Governor Sanjay Malhotra had indicated that the surplus was anticipated, with monsoon-related cash deposits and strong foreign investment also contributing.