According to SBI Research, the country’s largest public sector bank, the amount deposited under ‘Foreign Currency Non-Resident (Bank)’ (FCNR(B)) deposits in India has probably exceeded the total amount deposited during the Special Deposit Scheme in 2013 in just 45 days. Research estimates that under the current measures of RBI, the total inflow will ultimately reach $80-85 billion. The Reserve Bank of India had reported total inflows of $20.7 billion till July 17, which included $17.4 billion through FCNR(B) deposits. Based on subsequent trends, SBI estimates that FCNR(B) deposits have crossed the $26 billion mark accumulated during the scheme in 2013. At that time it took about three months to reach this figure.
How much money is expected in SBI report
SBI Research now estimates that FCNR(B) deposits will reach $65-70 billion by the time the scheme closes, much higher than its earlier estimate of $40-45 billion. Including Overseas Foreign Currency Borrowings (OFCBs) and External Commercial Borrowings (ECBs), the report expects total inflows to reach 80-85 billion donar. The increase in this deposit amount will be mainly due to public sector banks. A large portion of FCNR(B) deposits maturing in August and September are likely to be renewed under the new scheme as the interest rates are higher. SBI Research said that these renewals alone could bring in $10 billion.
SBI warning
The report said that while FCNR(B) inflows stood at $17.4 billion till July 17, there was an increase of only $7.6 billion in FCA (Foreign Currency Assets) since June 8. The report also says that by the end of July the pace of increase in FCA will increase to $17-20 billion. However, SBI has warned that the rupee is continuing to weaken and argued that RBI’s intervention in the foreign exchange market has not been strong enough.
The bank said that on an average the Central Bank is injecting $14 million every day, which is inadequate considering India’s foreign exchange reserves of about $676 billion. During 1997–98, the average investment was approximately $55 million per day. SBI said that the balance of payments is expected to have a surplus of more than $ 50 billion in the financial year 2027, whereas before these measures the deficit was estimated at $ 65-70 billion. Current account deficit is estimated to be 1.0-1.2 percent of GDP.
RBI Governor’s statement
In an interview published in ‘The Hindu Businessline’ newspaper on Monday, Central Bank Governor Sanjay Malhotra said that about $32 billion has come from the dollar-inflow scheme announced by the Central Bank in June. He said that this is expected to improve India’s balance of payments. Malhotra said that out of the $32 billion raised so far, most of the money has come from the ‘Foreign Currency Non-Resident Deposit Scheme’. Apart from this, after the tax change, about $7 billion has come in the form of foreign portfolio investment in debt securities. There is no evidence to suggest that most of the money coming in through FCNR was due to re-booking of deposits.
RBI’s stance on rupee
The increase in government cash balance is also a reason why the inflow of dollars is not reflected in the liquidity of the rupee. There has been no change in the policy of RBI regarding the rupee and the central bank intervenes only to prevent excessive fluctuations. It would be correct to assume that the rupee is not undervalued (i.e. the rupee is not undervalued). The current level of policy repo rate is appropriate as per the current growth-inflation situation. So far, inflationary pressure is normal, but due to increase in prices of food items and fuel, there is a danger of creating an environment of widespread inflation.
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