In a bid to attract foreign currency deposits by Non-Resident Indians (NRIs), Overseas Citizens of India (OCIs) and Persons of Indian Origin (PIOs), the Reserve Bank of India last month withdrew, till September 30, interest rate ceiling on fresh Foreign Currency Non-Resident (Bank) deposits of 3-5 years’ maturity.
The move came at a time when FCNR(B) deposit inflows weakened sharply, with net inflows dropping to just USD 946 million in FY26 from USD 7.1 billion in FY25.
The Finance Minister will chair a meeting of public sector banks and financial institutions, including IDBI Bank, on mobilisation of FCNR(B) deposits, Overseas Foreign Currency Bonds and External Commercial Borrowings on July 13, sources said.
Under the new arrangement, the RBI is offering a concessional foreign exchange swap facility to banks for FCNR(B) deposits with maturities ranging from three to five years. This significantly reduces the cost banks incur in hedging foreign currency exposure.
Besides, the RBI also announced a concessional forex swap facility to encourage PSUs to raise ECBs until September 30, 2026.
State-owned enterprises, particularly central public sector enterprises (CPSEs), typically raise around USD 10-12 billion annually through ECBs.Given the current window of opportunity and the 3 per cent cost advantage available, many are expected to front-load their borrowing plans.
SBI Research, in a report, said the concessional forex swap facility to incentivise ECB issuances by PSUs should accelerate such borrowings in overseas markets and this would help them access funds at competitive net pricing.
It would reverse the decline in total ECB/ foreign currency convertible bond (FCCB) flows, which fell by around 30 per cent in FY26 to USD 42.9 billion from USD 61.2 billion in FY25, it said.
According to sources, the finance minister may exhort them to increase credit flow towards productive sectors of the economy.