RBI's SOPs For FCNR(B) Deposits & Bank FX Loans: Experts See $40-60 Billion of Capital Inflows
Why It Matters
The policy could bridge a $50 billion balance‑of‑payments gap, stabilise the rupee and unlock significant foreign capital for Indian banks and markets.
Summary
The Reserve Bank of India announced new SOPs that let all banks raise foreign‑currency borrowings with the central bank absorbing a 1.5% swap cost, and it will also bear hedging costs for foreign‑currency deposits from non‑residents. This dual relief lowers funding expenses and enables banks to extend loans to NRI depositors, potentially widening capital inflows. Experts estimate that, if both the FCNR(B) and ECB routes are fully utilised, $40‑$60 billion could flow into India over the next three months. The cost comparison shows offshore funding at roughly 7‑7.5% after withholding tax and hedging, which is competitive with domestic rupee funding. However, the actual volume depends on regulatory clarity around banks’ ability to leverage deposits for loans. Panelists highlighted that the previous round of FCNR(B) attracted about $26‑$27 billion, with roughly half coming from self‑leverage. Barclays’ Mitul Kotecha expects a “substantial” inflow, noting that bond investors have already started buying Indian bonds post‑announcement. Deutsche Bank’s Kaushik Das warned that a strong dollar and high oil prices could temper rupee appreciation despite the inflows. If the projected $50 billion of net capital inflows materialise, they could close the current‑account deficit gap and support a more stable rupee, with forecasts ranging from ₹92 to ₹97 per dollar. The measures also aim to smooth volatility, fostering a gradual depreciation path rather than abrupt swings, which could benefit growth and financial stability.
Comments
Want to join the conversation?
Loading comments...