New Delhi, June 12: The recent measures taken by the Reserve Bank of India (RBI) are expected to bolster India’s foreign exchange reserves, enhance liquidity in the banking system, and support the Indian rupee. A report released on Friday indicates that these actions could lead to a forex inflow of $40-50 billion in the fiscal year 2027.
According to Motilal Oswal Financial Services Limited (MOFSL), the RBI’s discounted swap framework could reduce borrowing costs via the External Commercial Borrowing (ECB) route by approximately 200-250 basis points, benefiting banks significantly.
The report suggests that lower funding costs may stimulate credit growth, strengthen loan activities, and improve the funding capacity within the banking sector. This initiative resembles a program launched by the RBI in 2013, which resulted in an inflow of nearly $27 billion in Foreign Currency Non-Resident (FCNR) deposits and about $34 billion in total NRI deposits.
Additionally, this program helped to fortify India’s foreign exchange reserves and stabilize the currency market. Currently, FCNR (B) deposits account for only 1.2% of the total deposits in the banking system, indicating substantial room for growth.
However, banks have begun to increase interest rates on FCNR (B) deposits with varying maturity periods to make these products more appealing to NRI customers. The brokerage firm notes that banks with a strong customer base and established foreign networks are likely to benefit the most and capture a significant portion of the incoming funds.
The existing framework is designed to be advantageous for both depositors and banks, promoting greater participation. According to the brokerage, increased forex inflow, improved liquidity, and a larger reserve buffer could collectively support currency stability and enhance investor confidence.
MOFSL estimates that as inflows accelerate, the rupee could strengthen against the US dollar, potentially reaching the range of 93-94 in the near future. Furthermore, FCNR (B)-linked funding offers banks a spread advantage of approximately 60-65 basis points compared to traditional wholesale deposits, as it is exempt from Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR) requirements.
Notably, the central bank has recently introduced special facilities for Foreign Currency Non-Resident (FCNR) deposits and External Commercial Borrowing (ECB), allowing banks to raise foreign funds at relatively lower costs. These measures aim to attract foreign capital, enhance resource mobilization capabilities, and improve overall liquidity in the banking system, especially during a time of volatility in global markets and trends in capital flows.
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