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Informist, Friday, Jun. 12, 2026

MUMBAI – The Reserve Bank of India's move to introduce a swap facility for fresh foreign currency non-resident (bank) deposits and at fixed swap rate of 1.5% on external commercial borrowings is expected to provide a temporary relief in deposit mobilisation and improve systemic liquidity, says Motilal Oswal Financial services. The brokerage estimates a foreign capital inflow of $40 billion–$50 billion into the banking system.

Motilal Oswal belives "big" banks are well positioned to bag a higher share of deposits. "As per our interactions, a larger proportion of FCNR (B) deposits will be backed by leverage, and thus banks with a large customer franchise and an overseas presence are better positioned to garner a higher share of inflows," the brokerage said. 

The customers are expected to reap 15-26% returns on FCNR (B) deposits, while banks are estimated to earn 65 basis points higher spreads, making it a win-win proposition for everyone, Motilal Oswal said. Assuming a deposit of $100,000 and an FCNR deposit interest rate at 6.5%, a bank is expected to have an interest expense of $6,500. With the same amount of deposit and yield on loans at 9%, the interest income of the bank would be $9,000. Thus arriving at a net interest income $2,500. The spread of the bank on the FCNR (B) backed lending would be 2.5%.

With the same deposit amount, the spread on regular deposits is seen at 1.85%. This means the banks are estimated to earn a spread benefit of around 60–65 basis points from FCNR (B) deposits than regular lending, with CRR and SLR requirements, according to Motilal Oswal. Banks could raise the FCNR (B) deposit rates by 200-300 basis points, taking them to 6-7% from 3-4%. The banks will transfer the benefit of hedging costs incurred by the RBI to the depositors. 

Most of the larger Indian banks have raised rates on FCNR (B) deposits of three to five-year tenures to 6%, while small banks hiked it to 7%. In 2025-26 (Apr-Mar), the banks raised $900 million through FCNR (B) deposits against $7 billion in FY25, Motilal Oswal said. These deposits form only 1.2% of the overall deposits in the system as of March 2026. Motilal Oswal expects a surge in these deposits over the coming months, mainly in July and August – which is the month of Onam – seasonally stronger months for forex inflows.

In 2013, the RBI introduced a similar swap window for FCNR (B) deposits and overseas borrowings for banks. The central bank fixed the hedging cost at 3.5% per annum with a maturity of over three years. This supported strong FCNR (B) inflows amounting to $27 billion and an overall inflows of $34 billion in FY14, Motilal Oswal said. The brokerage also noted that the yield differential between prevailing US interest rates and FCNR (B) rates offered by banks is lower now as compared to that in 2013.  

The borrowing cost for banks through the external commercial borrowing route is likely to fall by 200–250 basis points, which will enable the system to raise resources while keeping funding costs under control, according to Motilal Oswal. "FIIs (foreign institutional investors) have been on a selling spree in recent months and these measures, alongside the reduction in tax rates on capital gains in debt securities, will help arrest currency depreciation and aid FX (forex) reserves," the brokerage said. Motilal Oswal sees a strong foreign exchange rate at around 93–94 levels.

The brokerage prefers ICICI Bank, HDFC Bank, and AU Small Finance Bank to perform well on the FCNR (B) deposits front. At 1231 IST, shares of the heavyweight banking stocks ICICI Bank and HDFC Bank traded nearly 1% and 2% higher, respectively. Shares of State Bank of India were up nearly 1% and those of AU Small Finance Bank marginally lower.  End   

US$1 = INR 95.37

IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT

Reported by Adhithya Aji

Edited by Akul Nishant Akhoury

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