Terms of FCNR-B and ECB Allow Leverage That Can Boost Forex Inflows

Research evidence excerpt

Terms of FCNR-B and ECB Allow Leverage That Can Boost Forex Inflows

feries 17% 21% 22% 27%

This time, banks can raise 3–5yr deposits, vs. 3yr-plus deposits in 2013.•

This time, fresh and renewal of FCNR-B deposits are included, whereas the 2013 scheme•

was limited to fresh deposits. This can inflate net flow nos slightly.

This time, hedging cost for banks is 0 (RBI will bear it all) vs. 3.5% last time.•

Banks may price deposits per internal policy, within RBI’s prescribed ceiling.•

Deposits are exempt from CRR and SLR, in line with 2013.•

This time, lock-in is for one year, and premature withdrawal is allowed thereafter, but RBI•

swaps cannot be cancelled. In 2013, swap cancellation was allowed with penal repricing.

This time, scheme runs from 8-Jun-26 to 30-Sep-26, i.e., 4mths, vs. ~3M in 2013.•

ECB: Key terms & comparison with 2013

This time, the facility is expanded to PSUs and AD-1 category banks vs. banks only earlier.•

This time it includes ECBs, undrawn ECB lines and OFCBs with 3-5yr maturity vs. earlier•

coverage of overseas loans/Nostro/OD facilities (1-3yrs).

This time, RBI has shifted to a fixed swap cost of 1.5% p.a. (semi-annually compounded)•

vs. a floating concessional rate (1% below market, reset annually).

This time, scheme runs from 8-Jun-26 to 31-Dec-26, i.e., 7mths, vs. ~3M in 2013.•

Leverage will be permitted and can draw flows. RBI is open to banks providing SBLC (Standby

Letter of Credit) to lenders of deposit customers, which can help them leverage their capital to

enhance returns. We estimate that with 7-10x leverage and spread of 1.5-2%, customers can

generate 17-27% US$-IRR annually over 3-5 years. Under 2013 scheme, Indian banks mobilised

US$34bn through FCNR-B and ECBs that was 12% of forex reserves and 3% of domestic

deposits.