Under the new window, operational between June 8 and September 30, 2026, banks can raise FCNR(B) deposits with tenors of 3-5 years and swap the proceeds into rupees at zero hedging cost, with these deposits also exempt from CRR and SLR requirements. This is a marked improvement over the 2013 scheme, where the RBI charged a 3.5% hedging fee. Banks have responded swiftly, raising FCNR(B) rates by 200-300 basis points to 6-7%, passing on the hedging benefit to depositors.
The economics are compelling on both sides. Analysis suggests NRI depositors using leverage of around 9x could earn returns of 15-26% annually, while banks stand to gain roughly 60-65 basis points in spread benefit from FCNR-backed lending versus regular wholesale deposits, a structure being described as a win-win.
Separately, a concessional swap facility for external commercial borrowings and overseas foreign currency borrowings, available until December 2026, offers banks hedging at a flat 1.5% per annum against a market cost of 3.5-4%, translating into a 200-250 basis point benefit on incremental overseas borrowing costs.
The broader context matters: foreign institutional investors have been net sellers of roughly $45 billion since CY24, denting holdings in large private lenders by 3-13% over the past year. The 2013 precedent offers a useful template. That swap window drew in $27 billion of FCNR(B) deposits and $34 billion in total inflows, strengthening reserves by $12 billion and helping the rupee appreciate 3.4% within a year. Reserves continued climbing for three years after, by a cumulative $68 billion.
While the current yield differential between US and Indian deposit rates is narrower than in 2013, the proposition still holds appeal, particularly with the seasonally strong NRI remittance months of July and August approaching. The RBI projects total FY27 inflows of $40-50 billion from these measures combined.For the sector, the near-term opportunity lies less in headline growth and more in execution, how efficiently lenders convert these flows into profitable book expansion. Institutions with strong overseas franchises and disciplined deposit pricing are best placed to convert this liquidity tailwind into durable margin gains, even as the improvement in systemic liquidity and currency stability should collectively ease the FII selling pressure that has weighed on sector sentiment.RBL Bank – TP: 405
RBL Bank is expected to benefit significantly from Emirates NBD’s proposed open offer, which could strengthen capital adequacy, support faster loan growth, and reduce funding costs. In 4QFY26, the bank reported healthy business momentum, with advances and deposits growing strongly, while profitability improved on lower tax expenses. Management has guided for 20%+ loan growth in FY27, supported by scaling secured retail lending and moderating credit costs. Improving return ratios, potential strategic synergies from the proposed investment, and healthy balance sheet growth support a positive medium-term outlook.
(The author Siddhartha Khemka is Head – Research, Wealth Management at Motilal Oswal Financial Services Ltd.)
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