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The Reserve Bank of India’s decision to reinvigorate Foreign Currency Non-Resident (Bank) or FCNR-B deposits could pave the way for fresh long-term foreign exchange inflows, according to a report. 

Jefferies, in its report, said that the renewed focus on FCNR-B deposits is aimed at mobilising funds from non-resident Indians for a tenure of 3–5 years, potentially opening a stable channel of forex inflows into the country’s banking system.

It noted that the initiative draws parallels with the RBI’s 2013 measures, when FCNR-B and external commercial borrowing (ECB) schemes collectively mobilised around $34 billion, equivalent to about 12 per cent of India’s foreign exchange reserves at the time and nearly 3 per cent of total bank deposits.

One of the key factors to watch in the current cycle is the extent of clarity on leverage available to depositors, especially as the yield differential between Indian and US assets is relatively narrower compared to 2013.

The report highlighted that the central bank may absorb the full cost of hedging this time, while potentially exempting such deposits from statutory liquidity ratio (SLR) and cash reserve ratio (CRR) requirements.

This would mark a more liberal approach compared to 2013, when the RBI had capped hedging costs for banks at 3.5 per cent.

In addition, the central bank has allowed public sector undertakings (PSUs) to raise ECB funds, with hedging costs potentially being borne by the RBI. The hedging window remains open until September 30, 2026.

The brokerage said the 2013 mobilisation drive was highly successful, aided significantly by leverage structures that allowed investors to amplify exposure through bank-issued standby letters of credit (SBLCs), resulting in larger inflows.

However, it noted that subsequent regulatory changes led the RBI to discourage leverage through such instruments.

India’s foreign exchange reserves, currently around $682 billion are significantly higher than in 2013, which could influence the scale and design of the current mobilisation effort, it said.

According to the brokerage, participation from large banks played a major role in widening the funding pool and supporting credit growth and margins during that period.