The deposits came through a special RBI window intended to support India’s balance of payments amid expensive oil. The central bank provided a swap arrangement covering principal repayments. Foreign lenders have generally hedged their interest obligations, while many public-sector and private Indian banks have chosen to keep that currency risk open.

Cost is the main reason cited by bankers at public-sector and mid-sized private lenders. Protection for deposits running three to five years costs roughly 3% annually. Rather than incur that expense, these banks intend to purchase dollars in the spot market as interest falls due.

That choice rests partly on confidence in the rupee, which recently reached its strongest level in two months following RBI intervention. Several treasury heads expect continued currency support. But Brent approaching $100 per barrel and the prospect of a US Federal Reserve rate increase could test that confidence.

A sharp depreciation would make dollar purchases more expensive, raising funding costs and squeezing bank profitability. The report flags a possible move towards ₹96–97 per dollar as a stress scenario, not a forecast. If half or more of the interest exposure stays uncovered, simultaneous dollar buying by banks could add further pressure on the rupee.