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The Reserve Bank of India's (RBI) Foreign Currency Non-Resident Bank (FCNR-B) deposit scheme has attracted stronger-than-expected inflows, with around USD 41 billion mobilised so far, and the total is expected to reach USD 80-100 billion by the time the scheme closes on September 30, according to a latest report by Jefferies.
The report said the scheme, introduced by the RBI in early June to raise foreign currency deposits from non-resident Indians (NRIs) and support the rupee, has performed better than expected. According to Jefferies, "There have so far been USD 41bn of inflows through the scheme and that is expected to double to USD 80-100bn in the next two months when the scheme ends." The RBI announced the facility for concessional swaps on fresh FCNR-B deposit inflows on June 5. The facility will remain available until September 30. Jefferies said the strong response to the scheme is one of the key positives for India's economy and capital inflows. It added that the inflows are expected to help stabilise the rupee after a period of weakness. The report stated, "All this increases the likelihood that the rupee should stabilise." It noted that the rupee had bottomed at 96.96 in May and was trading at 95.17 at the time of the report. Jefferies also said the FCNR-B scheme is the third time India has used such a measure to strengthen the domestic currency. Similar schemes were introduced earlier in 1993 and 2013 to support the rupee during periods of pressure. The report further said it understands that many NRIs have been making significant use of the scheme. According to Jefferies, "GREED & fear hears that in practice NRIs have been leveraging 9-19 times to generate a dollar return of 11-20 per cent in what is viewed as a risk free investment since it is guaranteed by the Indian government." Apart from the FCNR-B scheme, the report highlighted another positive development for capital inflows. It said the government made ownership of Indian government bonds tax-free for foreign investors in early June by removing tax on interest income received. As a result, Jefferies said there have been net inflows of USD 8.7 billion into Indian government bonds since the start of June, further improving the country's capital inflow outlook. The report also pointed to improving domestic economic indicators. It said bank credit growth has accelerated to the 17-18 per cent year-on-year range, the highest in more than a decade, led by 20 per cent growth in corporate lending, while lending to the agriculture sector has grown 17 per cent and retail loans 16 per cent. It added that demand for automobiles and property also remains healthy. Jefferies noted, the stronger-than-expected FCNR-B inflows, healthy domestic credit growth and continued capital inflows into government bonds are positive signs for India's economy and could help provide greater stability to the rupee in the coming months. (ANI)
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