Jefferies sees RBI's FCNR-B, ECB measures could attract $50-70 billion inflows

New Delhi [India], June 9 : The Reserve Bank of India's latest measures to facilitate Foreign Currency Non-Resident Bank [FCNR(B)] deposits and External Commercial Borrowings (ECBs) could attract significantly higher foreign currency inflows than the 2013 special swap window, with global brokerage Jefferies estimating potential inflows of USD 50-70 billion.

In a report released on Monday, Jefferies said the revised framework is more supportive than the 2013 scheme and could drive stronger participation from non-resident Indians (NRIs) and overseas lenders.

"Terms on FCNR-B and ECB raising are supportive," the brokerage said, adding that the key attraction would be the ability to use leverage under the new framework.
According to the report, FCNR-B deposits now offer several advantages over the 2013 scheme. "This time, hedging cost for banks is 0 (RBI will bear it all) vs. 3.5% last time," Jefferies noted. It also highlighted that deposits would remain "exempt from CRR and SLR, in line with 2013."

The brokerage said leverage could substantially improve returns for depositors. "Leverage will be permitted and can draw flows," it said, noting that the RBI is open to banks providing Standby Letters of Credit (SBLCs) that can help depositors leverage their capital.

Jefferies estimated that "with 7-10x leverage and spread of 1.5-2%, customers can generate 17-27% US$-IRR annually over 3-5 years."
On ECBs, the report said the scheme has been widened beyond banks to include public sector undertakings and authorised dealer category-I banks. It also pointed out that the RBI has introduced "a fixed swap cost of 1.5% p.a. (semi-annually compounded)" compared with the concessional market-linked structure used earlier.

Drawing parallels with the 2013 special swap window, Jefferies said Indian banks had then mobilised USD 34 billion through FCNR-B deposits and other foreign currency borrowings. The report noted that those inflows represented 12% of forex reserves and 3% of domestic deposits, at the time.

Given India's much larger reserve base today, Jefferies believes the latest measures could have a meaningful macroeconomic impact. "With current forex reserves of USD 682bn, substantial flows can support domestic liquidity, forex reserves and exchange rate," the report said.

Jefferies added that private sector lenders could be among the key beneficiaries if inflows materialise. It recalled that during the 2013 scheme, "HDFC Bank mobilised US$3.4bn (7% of total deposits as of Jun-13), followed by ICICI Bank, SBI and select foreign banks," helping them access larger funding pools while supporting growth and margins.
The brokerage noted that the improved economics of the scheme and the availability of leverage make the current FCNR-B and ECB framework capable of generating larger inflows than witnessed in 2013.