Under the new window, operational between June 8 and September 30, 2026, banks can raise FCNR(B) deposits with tenors of 3-5 years and swap these amounts into rupees at zero hedging cost, with these deposits also exempt from CRR and SLR requirements. This is a significant improvement over the 2013 scheme, where the RBI charged a hedging fee of 3.5%. Banks have responded quickly, raising FCNR(B) rates by 200-300 basis points to 6-7%, providing a hedging benefit to depositors.
The economics are compelling on both sides. Analysis suggests that NRI depositors can earn a return of 15-26% per annum using a leverage of around 9x, while banks can get around 60-65 basis points in spread benefit from FCNR-backed lending versus regular bulk deposits, a structure described as a win-win.
Separately, the concessional swap facility for external commercial borrowings and foreign foreign currency borrowings, available till December 2026, offers banks hedging at 1.5% per annum against market costs of 3.5-4%, which translates into a 200-250 basis point benefit.
Broader Context Matters: Foreign institutional investors have been net sellers of around $45 billion since CY24, reducing holdings in large private lenders by 3-13% over the past year. A 2013 hypothesis provides a useful example. That swap window saw $27 billion in FCNR(B) deposits and $34 billion in total inflows, an increase in reserves by $12 billion and helped the rupee appreciate by 3.4% in a year. Reserves continued to grow for three years by $68 billion.
Live events
The US And while the current yield gap between Indian deposit rates is lower than in 2013, the proposition still has appeal, especially with the seasonally strong NRI remittance months of July and August. RBI projects a combined inflow of $40-50 billion in FY27 from these measures.
For the sector, the near-term opportunity lies less in headline growth and more in execution, how efficiently lenders convert these flows into profitable book expansion. Institutions with a strong foreign franchise and disciplined deposit pricing are best placed to convert this liquidity tailwind into sustainable margin gains, although improving systemic liquidity and currency stability will collectively ease FII selling pressure that has weighed on sector sentiment.
RBL Bank – TP: 405
RBL Bank is expected to benefit significantly from Emirates NBD’s proposed open offer, which could strengthen capital adequacy, support faster loan growth and reduce funding costs. In 4QFY26, the bank reported healthy business momentum, with advances and deposits growing strongly, while profitability improved on lower tax costs. Management has guided for 20%+ loan growth in FY27, supported by secure retail lending and moderation in borrowing costs. Improving return ratios, potential strategic synergies from the proposed investment and healthy balance sheet growth support a positive medium-term outlook.
(The author Siddharth Khemka is Head of Research, Wealth Management at Motilal Oswal Financial Services Ltd.)
(Disclaimer: Recommendations, suggestions, opinions and views given by experts are their own. These do not represent the views of Economic Times.)
(You can now subscribe to our ETMarkets WhatsApp channel)