NRI Deposits Drive RBI Swaps, Potentially Attracting $80-85 Billion
MUMBAI/NEW DELHI: Indian bankers anticipate that the country will attract between $80 billion and $85 billion in foreign capital through the Reserve Bank of India’s (RBI) swap-backed initiative. This initiative encompasses FCNR(B) deposits, external commercial borrowings (ECBs), and overseas foreign currency bonds (OFCBs) issued by banks. However, the timing of these inflows is expected to vary due to differing durations.
Early traction is expected from FCNR(B) deposits, which are gaining interest among non-resident Indians (NRIs). Meanwhile, public sector undertakings and banks are taking a cautious approach regarding ECB and OFCB issuances, given their longer timelines. The FCNR(B) facility is set to close on September 30, while the ECB and OFCB schemes will remain open until December 31. Bankers believe that borrowing activity may increase in the fourth quarter of the year.
Large inflows could provide support to the Indian rupee, which has faced pressure amid global economic uncertainties. This initiative follows a review meeting led by Finance Minister Nirmala Sitharaman with bank executives, where strong interest was reported from regions including Singapore, Hong Kong, West Asia, the UK, and the US. Banks are enhancing their offerings on FCNR(B) deposits, aided by the suspension of interest rate ceilings, and are increasing outreach through digital channels to attract diaspora savings.
A day after the finance minister’s meeting, RBI Governor Sanjay Malhotra convened with bank leaders to discuss deposit mobilization strategies. Malhotra encouraged banks to utilize advanced technologies, including artificial intelligence, to enhance their reach and operational efficiency while ensuring robust cybersecurity and internal controls.
Bankers have expressed caution, noting that current conditions differ significantly from the 2013 swap window, which saw the mobilization of approximately $26 billion through FCNR(B) deposits and an additional $8 billion through overseas borrowings. The narrowing interest rate differential between India and the US, along with changes in tax treatment in markets like the UK, has diminished the appeal of these instruments. This situation underscores the need to focus on tax-efficient jurisdictions such as the UAE and to promote NRI deposits funded through overseas borrowings.
Another notable change is the rise of GIFT City as an international financial center. While banks can raise and lend foreign currency through its units, lenders have noted that borrowing costs there may still be higher than those in global markets, which could limit its attractiveness. Officials indicated that the RBI is facilitating mobilization through a real-time monitoring framework, while the finance minister urged banks to enhance engagement with NRIs and maintain momentum. The schemes, introduced in June, provide a dollar-rupee swap at par for FCNR(B) deposits and concessional swaps for ECBs and OFCBs, aimed at strengthening reserves and improving the balance of payments amid a challenging global environment.
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