The Reserve Bank of India’s (RBI) ambitious plan to attract foreign capital is set to bear fruit, with bankers predicting an influx of $80-85 billion into the country through a mix of FCNR(B) deposits, external commercial borrowings and overseas foreign currency bonds issued by banks. This significant flow of foreign capital is expected to be driven by non-resident Indian (NRI) deposits, which have shown a steady trend of growth in recent years. As the RBI’s swap-backed push gains momentum, the timing of these inflows is likely to be uneven, given the varying durations of these instruments.
FCNR(B) Deposits: A Key Component
FCNR(B) deposits, which allow non-resident Indians to park their money in Indian rupees for a fixed period, are expected to be a key component of the RBI’s swap-backed push. These deposits have been gaining popularity in recent years, particularly among NRIs who are looking for a safe and stable investment option. With the RBI’s assurance of a fixed return on these deposits, NRIs are likely to continue to pour money into India, thereby contributing significantly to the country’s foreign exchange reserves.
Industry experts point out that the RBI’s decision to offer a fixed return on FCNR(B) deposits has helped to boost investor confidence, particularly among NRIs who were earlier hesitant to park their money in India due to concerns over the country’s economic stability. As a result, FCNR(B) deposits have emerged as a popular investment option, attracting significant inflows of foreign capital into the country.
External Commercial Borrowings: A Vital Source of Finance
External commercial borrowings (ECBs) are another vital source of finance for the RBI’s swap-backed push. ECBs allow Indian companies to raise funds from abroad to finance their business requirements, and the RBI’s decision to provide rupee-denominated bonds for ECBs has made it easier for companies to access foreign capital. With the RBI’s guarantee of a fixed return on these bonds, companies are likely to continue to tap the ECB market, thereby contributing to the country’s foreign exchange reserves.
Industry experts point out that the RBI’s decision to provide rupee-denominated bonds for ECBs has helped to reduce the cost of borrowing for Indian companies, thereby making it easier for them to access foreign capital. As a result, ECBs have emerged as a popular source of finance for Indian companies, attracting significant inflows of foreign capital into the country.
Overseas Foreign Currency Bonds: A New Frontier
Overseas foreign currency bonds (OFCBs) are a new frontier for the RBI’s swap-backed push. OFCBs allow Indian banks to raise funds from abroad to finance their business requirements, and the RBI’s decision to provide rupee-denominated bonds for OFCBs has made it easier for banks to access foreign capital. With the RBI’s guarantee of a fixed return on these bonds, banks are likely to continue to tap the OFCB market, thereby contributing to the country’s foreign exchange reserves.
Industry experts point out that the RBI’s decision to provide rupee-denominated bonds for OFCBs has helped to reduce the cost of borrowing for Indian banks, thereby making it easier for them to access foreign capital. As a result, OFCBs have emerged as a popular source of finance for Indian banks, attracting significant inflows of foreign capital into the country.
The RBI’s ambitious plan to attract foreign capital is set to bear fruit, with bankers predicting an influx of $80-85 billion into the country through a mix of FCNR(B) deposits, external commercial borrowings and overseas foreign currency bonds issued by banks. As the RBI’s swap-backed push gains momentum, the timing of these inflows is likely to be uneven, given the varying durations of these instruments. Nevertheless, the RBI’s efforts are expected to have a significant impact on the country’s foreign exchange reserves, making it easier for Indian companies and banks to access foreign capital and supporting the country’s growth story.
