India’s central bank has seen unprecedented foreign currency deposits surpass initial forecasts, with inflows reaching $41 billion and potentially hitting up to $100 billion as the FCNR-B scheme gains momentum amid currency pressure.
India’s central bank has drawn far more foreign currency deposits than many bankers had expected through its special FCNR-B scheme, with Jefferies estimating that inflows have already reached about $41 billion and could climb to $80 billion to $100 billion by the time the window closes on September 30. The programme was introduced in early June to bring in dollar deposits from non-resident Indians and support the rupee at a time of pressure on the currency. According to Jefferies, the scale of the response has exceeded early market forecasts.
That view is consistent with recent banking data showing a rapid pickup in flows after the Reserve Bank of India opened the concessional swap facility on June 8. Economic Times reported that foreign banks have accounted for the largest share of the more than $17 billion mobilised under the arrangement, while large state-owned and private lenders have also taken meaningful amounts.
The structure of the scheme has helped make it attractive. Business Standard reported in June that the RBI is covering the hedging cost, which had been estimated at 3% to 3.5%, while banks can offer higher rates on the deposits. The same report said bankers still doubted whether the latest effort could match the leverage-fuelled success of the 2013 mobilisation, when FCNR-B inflows reached about $26 billion.
Still, the scale of the current response marks a clear improvement from the first weeks of the programme, when inflows were seen as lagging the RBI’s expectations. Livemint reported that the central bank had asked commercial banks about the softer-than-anticipated start, while market estimates at the time suggested total inflows might land around $45 billion to $55 billion. The latest Jefferies estimate now points to a much stronger finish, with the big banks such as HDFC Bank, State Bank of India and ICICI Bank likely to be among the chief beneficiaries.
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