Over June and July, India has received $49 billion in the form of Foreign Currency Non-Resident (Bank) deposits, two types of foreign loans, and net investment in government bonds. But the rupee has hardly budged: on Friday, it closed at 95.39 per dollar, just 0.4% stronger than where it stood on June 4, the day before the government and the Reserve Bank of India (RBI) announced a raft of measures to boost foreign inflows.Contrast this with 2013, when a similar concessional swap window for FCNR(B) deposits was announced. From 67.6-per-dollar on September 3, 2014 – the day before the incoming governor, Raghuram Rajan made the announcement – the rupee rose 10.3% to 61.3-per-dollar in the first 40 days of the scheme.“Such schemes work best when they are aimed at addressing local imbalances and adverse country-specific perceptions, not global risks,” ANZ economists Sanjay Mathur and Dhiraj Nim said in a note on Friday, pointing to the re-escalation of the West Asia conflict and the consequent rise in oil prices and the dollar’s strength.Mismatch in numbersThe swap window for FCNR(B) deposits works like this: banks get dollar deposits and send them directly to the RBI in exchange for rupees. As such, these dollars don’t enter the open market for foreign currencies and don’t help in meeting the demand for them. And the exchange rate is determined by the supply of and demand for dollars in the open market.If the supply of dollars increases, that would reduce its price and strengthen the rupee, just like any item whose supply increases. Think of farmers dumping tomatoes or other farm produce by the truckload when a good harvest leads to a jump in supply and a price crash.Also in Explained | How India prevented major fertiliser shortages despite West Asia war, and the concerns nowBut if the dollars from the swap windows are going directly to the RBI, why is it not leading to a matching increase in the central bank’s holdings of foreign currency assets (FCA)? Between June 8 and July 17, Indian banks raised $17 billion of FCNR(B) deposits. Meanwhile, the RBI’s holdings of FCA only rose by $7 billion or so. What happened to the other $10 billion?Delays, forwards, hedgesOne reason why the RBI’s FCA has not risen at the same pace as inflows under the swap scheme is the operational delay.Story continues below this ad“In principle, while RBI provides weekly change in FCA every Friday, every bank has a designated time during the week to swap these FCNR(B) deposits with RBI and get equivalent rupee resources. Thus, it is entirely possible that FCNR(B) deposit numbers are being captured by RBI and become a part of FCA with a clear lag,” said Soumya Kanti Ghosh, State Bank of India’s Group Chief Economic Advisor.Then there are other routes where the dollars are going.The reemergence of tensions between US and Iran over the second half of July weakened the rupee; this was countered by the RBI’s dollar sales, which in turn would have offset some of the inflows. This is called spot market intervention by the central bank.Also Read | Corporate earnings are beating estimates, but here’s why analysts still cautiousThere is also the forward market. Selling dollars in this market is advantageous as it allows the RBI to stop the rupee from falling without having to sell dollars immediately. And the RBI has been very active in this segment.Story continues below this adAt the end of June, it had sold $103 billion on a net basis in the forward market, only slightly lower than the all-time high $107 billion at the end of May. This means it must provide $103 billion in the future. Data shows around $9 billion of this needs to be given in July itself. Maybe that’s where some of the new inflows have gone.Banks, too, are playing a role in the reduced visible impact of FCNR(B) deposit inflows. With the RBI only bearing the exchanging rate risk for the principal amount of these deposits, banks must protect their dollar interest payments from any currency risk. So, banks are hedging their interest payment-related exchange rate risk, which raises demand for dollars in the future – and puts pressure on the rupee.Future of FCNR(B), rupeeNon-residents’ interest in FCNR(B) deposits cannot be understated. If the current pace holds and no new problems crop up, bankers expect NRIs to keep taking advantage of the 19x leverage they are being offered and potentially pour in as much as $75 billion by September 30, when the window ends. According to an official at a private bank, NRIs are literally lining up to make these deposits.“For banks who are sporadically taking minimum deposits of $50,000, they will see people queue up. I heard this happened in SBI’s GIFT City branch – people were actually standing in lines because it’s such a good investment,” an official at a bank who did not wish to be named, said. Many banks have a minimum deposit threshold of around $500,000.Story continues below this adNewsletterFollow our daily newsletter so you never miss anything important. On Wednesday, we answer readers' questions.SubscribeWhile interest in FCNR(B) deposits is sky-high, the rupee’s trajectory is likely to be more sedate. According to Tanvee Gupta Jain, UBS’ Chief India Economist, shifting external conditions mean the rupee could end 2026-27 largely unchanged at around 96-per-dollar. This would reflect the balance between a “modestly improved near-term external outlook and persistent medium-term structural headwinds” such as the need to attract higher net Foreign Direct Investment, risks to IT services exports from AI-driven disruption, and a stronger dollar should the US Federal Reserve increase interest rates.