Increase in India’s foreign currency assets (FCA)

Source- This post on the Increase in India’s foreign currency assets (FCA)  has been created based on the article “Return on foreign currency assets doubles in two years” published in “The Indian Express” on 16 July 2024.

What are the Interest Rate Impact?

i) Due to rising interest rates in the US and other developed countries, the return on FCA increased to 4.21% in March 2024 from 2.11% in March 2022. This resulted in the RBI earning over $19 billion in interest income for the fiscal year ending in March 2024.

ii) The rate of return on FCA was 3.73% in FY2023, 2.10% in FY2021, and 2.65% in FY2020.

Gold Reserves of India

i) During FY24, the RBI reduced gold held abroad by around 50 tonnes, bringing the total to 387.26 metric tonnes. RBI reduced its gold holding due to high cost of keeping gold abroad.

iii)  As of March 2024, the RBI held 822.10 metric tonnes of gold, with 408.31 metric tonnes held domestically and 26.53 metric tonnes as gold deposits.

About FCA

i) India’s Foreign Exchange Reserves comprise Foreign Currency Assets, Gold, SDR’s and Reserve Bank position with International Monetary Fund (IMF).

ii) Foreign currency assets include investments in US Treasury bonds, Bonds/Treasury Bills of other selected Governments, deposits with foreign central banks, foreign commercial banks etc.

Composition of FCA:

i) As of March 2024, out of the total FCA of $570.95 billion–

a) $468.99 billion was invested in securities.

b) $62.17 billion was deposited with other central banks and the BIS.

c) $39.79 billion comprised deposits with commercial banks overseas.

ii) A small portion of the reserves is managed by external asset managers to explore new strategies and diversify the portfolio. These investments are governed by the RBI Act, 1934.

UPSC Syllabus: Indian economy