Reserve Bank of India manages liquidity surplus and updates FEMA regulations

The Reserve Bank of India (RBI) is undertaking efforts to manage the nation's regulatory framework and banking liquidity. As part of an ongoing initiative to rationalize the Foreign Exchange Management Act (FEMA) framework, the RBI has withdrawn seven inoperative circulars. These withdrawn directives primarily concerned External Commercial Borrowings (ECB), rupee-denominated bonds, and the Money Transfer Service Scheme, having been rendered redundant or superseded by newer regulations.

Simultaneously, the RBI is addressing a significant surplus of rupee liquidity within the domestic banking system. Following a facility launched in June 2026 to attract foreign-currency non-resident deposits, inflows reached between $128 billion and $136 billion, exceeding the initial $80 billion target. To manage the resulting excess liquidity, which was estimated between 9.7 trillion and 15 trillion rupees by September 2026, the central bank is utilizing USD/INR sell-buy foreign exchange swaps to absorb surplus cash from banks.