RBI Measures Can Generate $80-85 Billion of Foreign Investment As Banks Utilise NRI Deposits

India is likely to see significant foreign currency inflows from the RBI measures that have been announced. The overall move will be fuelled by the FCNR(B) deposits, while other measures will be OBC and ECAs.

The measures seek to enhance foreign exchange reserves and balance of payment position amid the uncertainty prevailing in the international markets. The estimated inflow of $80-85 billion covers multiple channels and is not expected to enter the country at the same time.

Invest in Indian Markets and Unlock Future Potential With 5paisa!

Open Account Now

FCNR(B) deposits are expected to attract early interest from non-resident Indians, while banks sector and public sector financial institutions are likely to take a more measured approach towards external commercial borrowings and overseas foreign currency bond issuances because of their longer execution timelines.

FCNR(B) Window Closes In September

The special FCNR(B) facility will remain available until 30 September, while the concessional schemes for external commercial borrowings and overseas foreign currency bonds will continue until 31 December. Borrowing activity through the latter channels could therefore see greater momentum during the October-December quarter.

The initiatives followed a review meeting chaired by Finance Minister Nirmala Sitharaman with bank chiefs. Lenders reported interest from markets including Singapore, Hong Kong, West Asia, the U.K. and the U.S.

Banks have also increased returns offered on FCNR(B) deposits after the suspension of interest rate ceilings. Digital channels are being used to reach non-resident customers and mobilise overseas savings.

Current Conditions Differ From 2013

The present environment differs from the 2013 period, when India mobilised around $26 billion through FCNR(B) deposits and another $8 billion through overseas borrowings. The interest-rate gap between India and the U.S. has narrowed since then, while changes in tax treatment in markets such as the U.K. have affected the attractiveness of some foreign currency instruments.

This has increased the focus on tax-efficient jurisdictions such as the UAE and on attracting NRI deposits supported by overseas borrowings. The emergence of GIFT City as an international financial centre has also added another channel for foreign currency fundraising and lending.

However, borrowing costs through GIFT City may still be higher than those available in some global markets, which could influence the pace of fund mobilisation. The RBI is supporting the process through real-time monitoring, while the government has asked banks to strengthen their engagement with overseas Indians.

The schemes announced in June provide a dollar-rupee swap at par for FCNR(B) deposits and concessional swaps for ECBs and OFCBs. The RBI’s monitoring framework and the December deadline for some of the measures will determine the pace at which the broader foreign capital mobilisation takes place.