Global brokerage Jefferies has said that the Reserve Bank of India’s recent steps aimed at easing rules for Foreign Currency Non-Resident Bank [FCNR(B)] deposits and External Commercial Borrowings (ECBs) may attract foreign currency inflows of nearly USD 50–70 billion — potentially surpassing the response seen during the 2013 special swap window. In its latest report released on Monday, Jefferies stated that the current framework appears more attractive than the one introduced in 2013 and could encourage stronger participation from both non-resident Indians (NRIs) and overseas lenders.

The brokerage noted that the revised FCNR(B) scheme offers improved incentives for banks and depositors. One of the major advantages highlighted was that the RBI will fully absorb hedging costs this time, unlike the 2013 arrangement where banks had to bear a hedging expense of around 3.5%. The report also pointed out that these deposits will continue to remain exempt from Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR) requirements, similar to the earlier scheme.

Jefferies believes the ability to use leverage under the new structure could become a key factor in driving inflows. According to the report, the RBI is allowing banks to issue Standby Letters of Credit (SBLCs), enabling depositors to leverage their investments more effectively. The brokerage estimated that with leverage of 7–10 times and spreads ranging between 1.5% and 2%, investors could potentially earn annual dollar internal rates of return (IRR) of around 17–27% over a three-to-five-year period.

On the ECB front, Jefferies said the RBI has expanded the scheme beyond banks by allowing participation from public sector undertakings and authorised dealer category-I banks. It also noted that the central bank has introduced a fixed swap cost of 1.5% per annum, compounded semi-annually, replacing the earlier market-linked concessional structure.

Drawing comparisons with the 2013 special swap window, Jefferies recalled that Indian banks had raised nearly USD 34 billion through FCNR(B) deposits and foreign currency borrowings at the time. Those inflows accounted for nearly 12% of India’s forex reserves and around 3% of domestic deposits then. With India’s foreign exchange reserves currently standing at nearly USD 682 billion, the brokerage believes the fresh measures could significantly strengthen liquidity conditions, boost forex reserves, and provide stability to the rupee.

Jefferies also said private sector banks could emerge as major beneficiaries if inflows increase meaningfully. Referring to the 2013 experience, the report noted that HDFC Bank had mobilised USD 3.4 billion, equivalent to roughly 7% of its total deposits as of June 2013, followed by ICICI Bank, State Bank of India, and several foreign banks. According to the brokerage, the improved economics of the latest FCNR(B) and ECB framework, combined with leverage opportunities, make the current scheme more capable of generating stronger inflows than the programme launched over a decade ago.

Disclaimer: This image is taken from ANI.