Bangladesh, Sept. 5 -- India has built its biggest-ever foreign exchange war chest. The Reserve Bank of India's reserves climbed to a record $740.8 billion in the week to Aug 28, after nine straight weeks of gains driven largely by heavy foreign-currency inflows attracted through special RBI schemes.

The reserve pile has grown by almost $75 billion over that period, according to central bank data reported by Reuters.

That gives the RBI considerably more firepower to support the rupee if external pressures intensify.

But there is a catch.

The same measures that brought more than $136 billion into India have also pumped an extraordinary amount of rupees into the banking system, leaving the central bank with a record liquidity surplus t...