The report highlights that the central bank has launched special provisions for Foreign Currency Non-Resident (Bank) [FCNR(B)] deposits and external commercial borrowings (ECBs), allowing banks to tap into overseas funds at reduced costs.
These measures aim to attract foreign capital, improve resource mobilization, and ease liquidity conditions within the banking sector.
It pointed out that banks could see a 200–250 basis point reduction in borrowing costs via the ECB route under the concessional swap framework, which is expected to bolster credit growth and enhance funding efficiency.
The report further stated that the current policy direction mirrors the 2013 initiative, which resulted in FCNR(B) inflows of approximately $27 billion and overall NRI deposit inflows of around $34 billion. This program also contributed to the stability of forex reserves and currency.
FCNR(B) deposits now represent roughly 1.2% of the total banking system deposits, indicating ample potential for expansion. The report noted that banks have begun raising FCNR(B) deposit rates across key maturities, enhancing the appeal of these instruments for non-resident Indians.
According to Motilal Oswal Financial Services, banks with robust retail franchises and established international networks are poised to capture a greater share of additional inflows. The scheme’s structure also benefits both depositors and banks, fostering broader participation.
The report mentioned that these measures are introduced at a time when foreign institutional investor outflows and currency fluctuations have impacted sentiment. Increased foreign currency inflows and a stronger reserve position are expected to bolster rupee stability and enhance investor confidence.
It estimates that the dollar/rupee could appreciate towards the 93–94 range in the near term as inflows gain momentum. Additionally, it noted that FCNR(B)-linked funding provides banks with a spread advantage of approximately 60–65 basis points over conventional wholesale deposits, owing to exemptions from CRR and SLR requirements.
Motilal Oswal Financial Services asserted that the RBI’s initiatives are likely to promote credit growth, strengthen bank balance sheets, and enhance system liquidity, creating a favorable environment for the banking sector in the upcoming quarters.
