RBI's Forex Push May Bring USD 40-50 Billion Into India In FY27: Report

New Delhi, June 12 (KNN) The Reserve Bank of India's latest measures to boost foreign currency inflows are expected to bring in USD 40-50 billion in the current fiscal 2026-27, local brokerage Motilal Oswal Financial Services said in a report on Friday.

The report highlighted that the RBI's recent move mirrors a similar initiative introduced in 2013, which led to Foreign Currency Non-Resident [FCNR(B)] deposits inflows of USD 27 billion and overall NRI deposit inflows of USD 34 billion.

The RBI and the government recently announced a slew of measures to boost foreign currency inflows, support rupee and improve banking system liquidity. They include special facilities for FCNR(B) deposits and external commercial borrowings (ECBs), removal of taxation for FPI investment in government securities, and expansion of the Fully Accessible Route (FAR) for FPI investments.

The announcements were made in the wake of foreign investors’ relentless exit from Indian equities and sharp decline in value of rupee against US dollar.

"The RBI has announced twin forex swap facilities to encourage foreign capital flows, strengthen forex reserves and stabilize the USD/INR exchange rate. We believe these measures should provide temporary relief in deposit mobilization, improve systemic liquidity and strengthen forex reserves in the near term," the brokerage said.

Banks to Gain

The RBI has introduced special facilities for FCNR(B) deposits and external commercial borrowings (ECBs), enabling banks to access overseas funds at significantly lower costs.

Motilal Oswal said that banks stand to benefit from a 200-250 basis point reduction in borrowing costs through the ECB route under the RBI's concessional swap framework.

Headroom for Growth in FCNR(B) deposits

The Motilal Oswal report said that FCNR(B) deposits currently account for just 1.2% of the banking system's total deposits, indicating significant headroom for growth.

It noted that banks have already increased FCNR(B) deposit rates across key tenors, improving the attractiveness of these deposits for non-resident Indians.

The report said that banks with strong customer franchises and an established overseas presence are best positioned to capture a larger share of the anticipated inflows.

Stability in USD/INR rate

Motilal Oswal expects a near-term strengthening in the USD-INR rate to 93-94 levels as a result of measures announced by the RBI and the government.

While the rupee has on an average fallen by about 4-5% in recent years, it depreciated by more than 12% in the last one year. The rupee has depreciated from 85 to around 96 against the dollar. One of the reasons for this has been foreign capital outflows.

As per Motilal Oswal, foreign Institutional investors (FIIs) have been on a constant selling spree led by uncertain global macros, better investment opportunities in other Asian emerging countries and sharp depreciation in USD/INR.

"FIIs have been on a selling spree in the recent months and these measures, alongside the reduction in tax rates on capital gains in debt securities, will help arrest currency depreciation and aid forex reserves. We thus expect a near-term strengthening in the USD-INR rate to 93-94 levels," the report said.

(KNN Bureau)