State Bank of India’s economic research arm has pushed back against criticism of India’s FCNR(B) deposit scheme, arguing that the programme’s costs have been overstated by counting the same currency exposure twice.
The scheme mobilised about $127 billion in foreign currency deposits in less than three months, according to SBI Research. It said the early closure of the programme was a prudent regulatory decision, given the scale of inflows.
The research paper disputes estimates that the scheme could result in a cost of around Rs 5 trillion. It says such calculations combine higher interest payments with an assumed future depreciation of the rupee, even though the currency risk on the deposits is already hedged.
The FCNR(B) deposits carry an interest cost, while banks also incur the cost of hedging their foreign-currency exposure. SBI Research argues that adding a separate depreciation-related loss to these costs amounts to double counting.
The report points to the RBI’s special USD-INR swap facility, through which the central bank absorbs the foreign-exchange risk associated with the deposits. Once the principal has been hedged, a subsequent fall in the rupee should not create another contractual loss on the same exposure, it said.
SBI Research also argues that the large inflow of foreign currency should not necessarily create a liquidity problem for banks. It expects demand from the festive season, credit disbursements, new loan sanctions and tax and GST outflows to provide avenues for deployment.
Using a credit multiplier of about 2.5, the report estimates that the deposits could eventually support additional credit of around Rs 25 trillion. At an assumed lending yield of 7.5%, it calculates a potential notional income of about Rs 1.8 trillion a year for banks, against estimated interest payments of roughly Rs 75,000 crore.
For the RBI, SBI Research estimates that investing around $100 billion in permitted overseas assets at an assumed 4% return over five years could generate about $20 billion. It says this could offset estimated hedging costs of around $15 billion.
The report therefore estimates potential notional gains of about Rs 5 trillion for banks and Rs 50,000 crore for the RBI over five years.
It also noted that Japan Credit Rating Agency upgraded India’s long-term foreign and local currency ratings from BBB+ to A- with a stable outlook on 2 September 2026. SBI Research said the successful mobilisation could support India’s external position and credit conditions, although other rating agencies have not committed to any reassessment timeline.
