- $17.41 billion inflows from FCNR-B deposits in 42 days.
- Total deposits in RBI’s Dollar Swap Facility are $20.72 billion.
- According to experts, inflow of foreign funds may increase further in August-September.
Non-resident Indians (NRIs) have deposited $17.41 billion in Indian banks through foreign currency non-resident (FCNR) deposits under a new deposit promotion scheme. This is a good start to the drive to attract dollars and strengthen the rupee. The scheme, announced on June 5 and launched three days later, allows non-resident Indians to make leveraged deposits (debt-based deposits) and will run until the end of September, with the central bank assuming hedging risk, allowing foreign investors to earn up to 14% return on their money.
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of the Reserve Bank of India (RBI), as of July 17, had a total of $20.72 billion deposited in their dollar swap facility, with FCNR-B deposits accounting for the largest share. Apart from FCNR-B deposits, $1.97 billion through foreign exchange borrowings and $1.34 billion through Waha Commercial Loans (ECBs) were also raised in the swap window. Commercial banks convert rupees into dollars at guaranteed rates through swap windows. RBI has said that the swap facility has received good response.
Face many challenges
According to media reports, due to the rising cost of foreign funds, banks are selectively accepting FCNR B Devis from Non-Resident Indians (NRIs) worth more than $1 million. Small loan deposits are no longer profitable, which could jeopardize India’s target of attracting inflows of $30-40 billion. Initially, banks faced challenges such as tax concerns among NRIs in markets like the US and the UK, uncertainty about the real source of investment and implementation clarifications (which came later in June).
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‘A good start’
Gaura Sengupta, chief economist at IDFC First Bank, described the capital inflow plan as “a very good start. Given the pace of progress, the plan could exceed our estimate of $50 billion in total FCNR B inflows. She said significant inflows are expected in August and September.”
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