RBI to bear full hedging cost on fresh FCNR(B) deposits till Sept 30 to attract dollar inflows

The Reserve Bank of India (RBI) has announced a special measure to encourage foreign currency inflows, offering to bear the full hedging cost on fresh 3-5 year Foreign Currency Non-Resident (Bank) deposits mobilised by banks until September 30, 2026.

Under the scheme, authorised dealer (AD) banks raising fresh FCNR(B) deposits will receive RBI support for the entire hedging cost, making such deposits more attractive and helping banks garner additional foreign currency funds from non-resident Indians.

The move is part of a broader package unveiled by the central bank to strengthen external buffers and manage foreign exchange volatility amid global uncertainty, rising crude oil prices and geopolitical tensions.

Commenting on the measures, Madhavi Arora, Chief Economist at Emkay Global Financial Services, said the RBI's key announcements were focused on managing currency volatility and boosting capital inflows.

Along with subsidised forex swaps for PSU external borrowings and expanded access for foreign investors to government securities, the FCNR(B) hedging support could help attract substantial dollar inflows and support the rupee.

According to Arora, these measures, together with the government's recent easing of tax norms for foreign investors in government bonds, could potentially bring in $30-50 billion of inflows over the year.

A similar view was echoed by Ashhish Vaidya, Managing Director and Treasurer – Global Financial Markets (India) at DBS Bank.

He said the package of measures covering ECBs, FCNR(B) deposits and other foreign borrowing channels could generate $30-40 billion of inflows, depending on the details of the incentives offered by the RBI.

Vaidya noted that the inflows are likely to be relatively stable in nature, as ECBs typically have maturities of around three years while FCNR(B) deposits are being encouraged in the three-to-five-year segment.

"It's a very stable set of money that should come in," he said, adding that the measures are positive for India's external position and the rupee.

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