RBI's NRI Deposit Scheme Draws $41B; Jefferies Sees Inflows Doubling to $100B

The Reserve Bank of India's (RBI) Foreign Currency Non-Resident Bank (FCNR-B) deposit scheme has pulled in around $41 billion since its launch in early June, according to a Jefferies report. The brokerage expects total inflows to double to $80-100 billion by the time the window closes on September 30, signaling a stronger-than-expected response from non-resident Indians (NRIs).

The scheme, introduced on June 5, offers concessional swaps on fresh FCNR-B deposits to shore up the rupee, which had touched a low of 96.96 in May. Jefferies noted that the inflows are a key positive for India's economy and should help stabilise the currency, which was trading at 95.17 at the time of the report.

This is the third time India has deployed such a measure, following similar initiatives in 1993 and 2013. Jefferies observed that NRIs have been leveraging the scheme heavily, with some using 9-19 times leverage to generate dollar returns of 11-20%, viewed as risk-free due to the government guarantee.

Beyond the FCNR-B scheme, the report highlighted another boost: the government's decision in early June to make interest income on Indian government bonds tax-free for foreign investors. This has led to net inflows of $8.7 billion into these bonds since June, further improving the capital inflow outlook.

Domestic economic indicators also remain encouraging. Bank credit growth has accelerated to 17-18% year-on-year, the fastest in over a decade, driven by 20% growth in corporate lending, 17% in agriculture, and 16% in retail. Demand for automobiles and property is also healthy.

Jefferies concluded that the combination of robust FCNR-B inflows, strong credit growth, and steady bond inflows bodes well for the rupee's stability in the coming months.