The facility for overseas residents has brought in over $50 billion since its June launch. Announced on June 5, it covered banks' currency-hedging costs, allowing them to offer attractive deposit rates without absorbing that expense. The scheme achieved its objectives ahead of time, prompting the early closure.

The announcement has already pushed up market borrowing rates. Three-month Certificates of Deposit, or CDs, climbed 16 basis points to 6.59 percent—the sharpest daily rise in more than a month. These instruments let banks raise short-term funds from investors; one basis point equals 0.01 percentage point.

Access to stable, lower-cost dollar deposits had reduced banks' need for CDs. Short-term debt issuance fell from ₹1 trillion in early June to around ₹57,120 crore in late July. RBL Bank treasury head Anshul Chandak expects CD issuance to pick up as banks replace the funding. Experts anticipate another 5-basis-point increase in money-market rates before they settle.

The wider challenge is that lending is expanding faster than domestic deposits. By late July, loan growth stood at 19.3 percent, against deposit growth of 15.4 percent. With households shifting savings from fixed deposits towards alternatives such as equities, banks need market funding to bridge the gap. Higher funding expenses could weigh on their profit margins.