Mumbai, Sept 2026 : India has emerged as the world’s fourth-largest holder of foreign exchange reserves after a record surge in dollar inflows pushed the country’s forex kitty to an unprecedented $785.7 billion, according to data compiled by Bloomberg.
The sharp increase has enabled India to overtake Russia in the global ranking and place fourth behind China, Japan and Switzerland. India’s foreign exchange reserves rose by $44.9 billion during the week ended September 4, marking one of the biggest weekly increases in the country’s reserves.
The record rise came amid substantial foreign currency inflows following the Reserve Bank of India’s (RBI) special foreign currency non-resident (bank) or FCNR(B) deposit initiative.
The increase in overall reserves was particularly significant as the gold component declined during the same week. India’s gold reserves fell by $2.59 billion to $113.81 billion amid a decline in international gold prices.
A larger foreign exchange reserve provides greater financial strength and reflects the resilience of the economy. It also gives the RBI additional room to manage volatility in the foreign exchange market and support orderly movement of the rupee during periods of heightened pressure.
With a stronger forex kitty, the central bank can intervene in both spot and forward currency markets by supplying dollars when required. Such intervention can help prevent excessive depreciation of the rupee and contain volatility in the currency market.
The surge in foreign currency inflows has, however, also resulted in substantial excess liquidity in the domestic banking system. In response, the RBI has intensified measures to absorb surplus funds.
The central bank has announced a Rs 1 lakh crore open market operation (OMO) sale of government securities. The operation will be conducted in three tranches, with government bonds worth Rs 50,000 crore scheduled for sale on September 17, followed by Rs 25,000 crore each on September 21 and September 28.
The auctions will be conducted through the multiple-price method using a multi-security auction mechanism.
The RBI had earlier conducted a Variable Rate Reverse Repo (VRRR) auction with a one-day tenor and absorbed more than Rs 3.53 lakh crore from the banking system. A VRRR auction is a monetary policy instrument used by the central bank to withdraw surplus liquidity from banks and maintain financial stability.
The RBI’s liquidity management measures have gained importance following strong foreign currency inflows generated by its special FCNR(B) deposit scheme.
The central bank had launched a special dollar-rupee foreign exchange swap facility on June 8 covering FCNR(B) deposits, Overseas Foreign Currency Borrowings (OFCB) and External Commercial Borrowings (ECB). The initiative resulted in an unprecedented flow of foreign currency into India.
According to the available data, the scheme attracted foreign exchange inflows of around $73 billion in less than 11 weeks after its launch, significantly strengthening the country’s reserves.
The response to the facility was so strong that the RBI decided to close the FCNR(B) window earlier than originally scheduled. The closure date was advanced from September 30 to August 31 after the central bank achieved its intended objective ahead of schedule.
The latest increase in reserves strengthens India’s external sector position and provides the RBI with a larger buffer to deal with global financial uncertainties, capital-flow fluctuations and potential pressure on the rupee.
