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Diaspora deposits cross $50 billion, RBI ends window
ThePrint··16 Aug
Indian banks raised more than $52 billion through FCNR(B) deposits from overseas citizens since June, prompting the RBI to close its special swap facility on August 31, a month ahead of schedule. Including other foreign borrowings, total inflows reached $56.85 billion. The RBI had offered to bear currency-hedging costs for banks as elevated oil prices pressured the rupee.
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What It Means For You
- If you are part of India's diaspora, banks were offering rates up to 7.75 percent on five-year FCNR deposits, a window now closing early.
- Domestic bond investors should watch the short end of the yield curve, which analysts expect to see a selloff once trading resumes.
- Rupee-watchers can take some reassurance that these inflows provide a buffer even as oil prices continue to pressure the currency.
What's Happening
- Banks received $52.3 billion through FCNR(B) deposits as of August 13, with total inflows including other borrowings reaching $56.85 billion.
- The RBI moved the facility's closing date to August 31 from September 30, citing an encouraging response from India's diaspora.
- The central bank had earlier agreed to cover currency-hedging costs for banks raising these deposits since the scheme launched in June.
Why the RBI Wanted These Dollar Inflows
- Elevated crude oil prices have kept pressure on the rupee, making diaspora dollar inflows a useful buffer for the RBI's foreign exchange management.
- Total inflows under the programme are still expected to reach around $70 billion by its revised close, according to one bank economist.
- Analysts expect a bond market selloff at the shorter end of the yield curve once the extra liquidity from the swap facility recedes.
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