The Foreign Currency Non-Resident (Bank), or FCNR(B), deposit scheme could generate a combined notional benefit of around Rs 5.5 trillion for Indian banks and the Reserve Bank of India (RBI) over five years, according to SBI Research.
The report estimates that banks could see a notional benefit of around Rs 5 trillion, while the RBI could gain another Rs 50,000 crore from deploying the foreign currency mobilised under the scheme. The assessment challenges earlier estimates that the scheme could impose a cost of around Rs 5 trillion.
The report estimates that the $ 127 billion mobilised through the FCNR(B) scheme could support around Rs 25 lakh crore of additional bank credit, using a conservative credit multiplier of 2.5.
At an effective lending yield of around 7.5 per cent, this could generate notional annual interest income of about Rs 1.8 lakh crore for banks. Against this, interest payments on the deposits at an estimated 6.5 per cent would amount to around Rs 75,000 crore annually. The resulting notional benefit would be around Rs 1 lakh crore a year, or about Rs 5 lakh crore over five years, according to the report.
SBI Research also argues that estimates of a Rs 5 trillion loss from the scheme effectively count the same foreign exchange exposure twice. It said the currency exposure on the deposits has already been hedged through the special USD-INR swap facility.
For the RBI, SBI Research estimates that deploying around $ 100 billion through globally investible avenues at a 4 per cent yield over five years could generate about $ 20 billion. After accounting for an estimated cumulative hedging cost of around $ 15 billion, the central bank could see an additional benefit of about $ 5 billion, equivalent to around Rs 50,000 crore at current exchange rates.
The report also said the additional liquidity generated through FCNR(B) mobilisation could support credit demand as banks face loan demand from the festive season and higher liquidity requirements linked to tax and goods and services tax outflows. ANI
