India's Foreign Currency Mobilization Exceeds Expectations, RBI Data Shows

MUMBAI: India's foreign-currency mobilisation drive could outpace earlier expectations after Monday's Reserve Bank of India data; some economists and analysts are now pencilling in a further upside of $10 billion to total flows.

The optimism follows RBI's disclosure that banks have collectively garnered $20.7 billion under its special incentive window, a pace that has already eased earlier concerns the scheme was struggling for traction.

Of the total, FCNR(B) deposits accounted for the largest share at $17.4 billion, mobilised within six weeks of the scheme becoming operational. This was followed by overseas foreign currency borrowings (OFCBs) at $2 billion and external commercial borrowings (ECBs) at $1.3 billion.

"I think there is an upside of about $10 billion to the total flows based on the numbers released by RBI, the pace is much higher than anticipated earlier," said Gaura Sengupta, chief economist, IDFC First Bank. "I believe net FCNR flows could ultimately clock around $60 billion, compared to earlier projection of $50 billion, with another $20 billion coming from ECBs and OFCBs. I am also optimistic because 60% of the inflows last time came in the final month." Sengupta said total flows under the window could climb to nearly $80 billion.

Analysts also point to foreign banks as the standout players in the FCNR(B) swap scheme, with some lenders offering leverage of up to 19x to boost deposit mobilisation from NRIs.

"The current run rate indicates that aggregate inflows should finish comfortably above the levels initially feared by the market," said Suresh Ganapathy, head of financial services research at Macquarie Capital. "Our channel checks suggest foreign banks have played a particularly active role. Unlike the previous scheme, when participation was more reliant on leverage, several foreign banks are now using their own balance sheets to support deposit mobilisation, pointing to broader participation and aiding flows."

The dedicated facilities, announced by the banking regulator on June 5, offer concessional swaps to incentivise capital inflows, support the balance of payments and a depreciating rupee, and help limit the impact of imported inflation. The window remains open for FCNR(B) deposits until September 30, and for OFCBs and ECBs till December 31.

The last time such a scheme was operationalised was in 2013, when it ultimately attracted $34 billion - $26 billion under the FCNR(B) window and $8 billion under the ECB window - helping cushion the fallout of the so-called taper tantrum. Bankers and economists now expect deposits under the current FCNR(B) scheme to cross $26 billion by the end of this month. "We believe that by August-September, when the scheme gathers momentum and the market borrowing situation improves, the inflows will gain further traction," said Madhavi Arora, chief economist, Emkay Global. "The early numbers released by RBI are very encouraging, and I believe that with banks targeting the ultra-HNI and HNI segments to mobilise deposits, the flows will increase further."

Among individual lenders, State Bank of India (SBI) alone has raised $3 billion, while Bank of Baroda mobilised more than $400 million as of July 17.