The Reserve Bank of India's recent foreign currency mobilisation measures could attract between USD 55 billion and USD 65 billion of inflows in FY27, significantly strengthening the rupee, improving banking system liquidity and turning the country's balance of payments (BoP) into a surplus, according to a new report by SBI Research.
In its latest Ecowrap report, SBI Research said the RBI's February and June 2026 policy measures represent a coordinated strategy to stabilise the rupee, deepen domestic debt markets, attract stable foreign capital and ease external funding conditions without raising domestic interest rates.
The report estimates that fresh FCNR(B) deposits could bring in USD 40-45 billion, while the newly announced External Commercial Borrowing (ECB), Foreign Currency Convertible Bond (FCCB) and Overseas Foreign Currency Borrowing (OFCB) swap windows could generate an additional USD 15-20 billion in foreign currency inflows during FY27.
FCNR(B) Window Expected to Attract Up to USD 45 Billion
The RBI recently introduced a US dollar-rupee forex swap facility for fresh FCNR(B) deposits with tenures ranging from three to five years, alongside exemptions from Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR) requirements for deposits mobilised until September 30, 2026.
SBI Research believes the move could replicate, and potentially exceed, the success of the 2013 FCNR(B) mobilisation programme, when banks attracted USD 24.5 billion in deposits within three months. Given the longer four-month window this time, the report projects inflows of USD 40-45 billion.
According to the report, banks can offer FCNR(B) deposit rates of around 5.5-6 per cent, making them attractive relative to current three-year US Treasury yields of approximately 4.2 per cent.
Forex Swap Measures to Support Rupee
The report said the ECB and OFCB swap facilities are expected to improve dollar liquidity and encourage fresh overseas borrowings by reducing hedging costs for eligible borrowers.
Under the scheme, RBI will undertake swaps at a fixed cost of 1.5 per cent per annum, significantly below prevailing market hedging costs. This is expected to encourage greater participation from public sector enterprises, banks and other eligible borrowers.
SBI Research estimates banks could raise USD 5-8 billion through OFCBs, while ECB and FCCB borrowings may contribute another USD 10-12 billion during FY27.
The report noted that ECB inflows had fallen 30 per cent in FY26 to USD 42.9 billion amid lower domestic interest rates and elevated hedging costs. The swap facility could reverse that trend by making overseas borrowing more cost-effective.
Deposit Growth Seen Accelerating
A major impact of the expected inflows would be on banking sector liquidity and deposit mobilisation.
SBI Research projects banking system deposit growth could rise to 14.5-15 per cent in FY27, compared with anticipated credit growth of around 16 per cent. This would narrow the credit-deposit gap by nearly Rs 1 lakh crore after accounting for regulatory adjustments.
The report added that the improved liquidity position could help ease funding pressures for banks, support lower market borrowing costs and contribute to a softer interest rate structure across the financial system.
BoP Surplus and Stronger Rupee Expected
The report forecasts that the additional inflows, coupled with stable remittances, healthy foreign direct investment and stronger foreign institutional investor participation, could shift India's balance of payments into a surplus of USD 5-10 billion in FY27.
This marks a sharp reversal from SBI Research's earlier expectation of a USD 65-70 billion deficit. The current account deficit is now projected at 1.5-1.7 per cent of GDP.
SBI Research also argued that the RBI should continue to intervene actively in currency markets to prevent excessive rupee depreciation, warning that the costs of sustained weakness could outweigh the benefits of greater exchange-rate flexibility.
The report further stated that discussions around an imminent interest rate hike cycle remain premature, citing historical evidence that policy decisions should remain data-driven despite recent currency volatility. |
