FCNR(B) Inflows May Reach $85 Billion as Dollar Mobilisation Target Met: SBI

While there may be valid reasons to justify an early closure of the RBI’s FCNR(B) deposit scheme, the most likely reason could be that the target for dollar mobilisation has already been achieved with inflows at $57 billion, and another $25-30 billion could easily flow in the remaining days of August, taking the total collections to around $85 billion, an SBI Research report said on Monday.

The balance of payment (BoP) will be in surplus of around $50 billion with Current Account Deficit (CAD) at 1 per cent of GDP, the report noted. The RBI has decided to close the FCNR(B) scheme one month ahead of the scheduled closure on September 30, 2026. The decision to close it early comes as a surprise to market participants even as in the last media interaction the RBI Governor had clearly indicated that there was no intention to close the scheme early in response to a pointed question in the media interaction.

According to the SBI report, “we don’t believe that the cost of swap could have been a constraining factor”. “Our estimates show that the cumulative cost would amount to around 15 per cent of the corpus, or $10.5 billion. While this appears sizeable in absolute terms, it needs to be viewed against the scale of India’s foreign-exchange reserves rather than the FCNR(B) corpus alone,” the report argued.

With current reserves at around $700 billion and incremental reserve accumulation assumed at roughly $20 billion annually, the five-year cumulative hedging cost of $10.5 billion would amount to only 1.45 per cent of the current reserve stock and around 1.27 per cent of the projected reserve stock, which is minimal. “We believe that the impact on rupee post the announcement of FCNR(B) measures has been surprisingly minimal,” said the report. We would also advise that RBI can use this opportunity to further diversify its foreign exchange reserves to bring in more portfolio resilience by buying gold, the report added.

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