India – Lofty FCNR expectations not being met (yet)

Research evidence excerpt

India – Lofty FCNR expectations not being met (yet)

tive INR yields. The pace of take up so far has indeed, been lower

than the run rate that would be expected by the lofty market expectations of around

USD40-50bn, with some having expected inflows of up to USD70bn3 .

High run rate required to hit market expectations. Expectations of large FCNR inflows were

based on: 1) the fact that the RBI will fully absorb hedging costs; 2) the precedent from the 2013

FCNR scheme, which mobilised around USD 34bn of FCNR deposits; 3) CRR and SLR

exemptions; and 4) the potential for enhanced returns through leverage structures offered to

some investors. While these factors may yet driver stronger inflows in the remaining two and

half months of the scheme, it will require a relatively high run rate to get to anywhere close to

market expectations by the time the window closes at the end of September.

Comparisons to 2013 may be misleading. In 2013, US interest rates were near zero and the

India-US yield differential was substantially wider, making FCNR deposits far more attractive

relative to available USD alternatives. Today, despite FCNR rates rising, US cash and fixed-

income yields remain relatively high, reducing the relative attractiveness of the

scheme. Leverage may partly offset this, but it is only available to a subset of clients.

In addition, implementation of leveraged structures appears to have been more complex

than initially expected, and banks may have been cautious in extending such facilities, which

may have limited uptake. Bankers have also cited uncertainty around leverage and GIFT City

structures as early impediments to mobilisation4 .

1 RBI set to meet banks’ top brass; slow FCNR-B inflows likely to dominate talks, source say - Moneycontrol, 14 July 2026