The move by the Reserve Bank of India (RBI) to offer concessional swap rates to banks to raise dollar deposits from non-resident Indians could raise up to $8-$10 billion, Bank of America-Merrill Lynch says, as it removes the currency risk away from banks or citizens abroad.
The RBI will swap FX-denominated foreign currency non-resident bond (FCNRB) deposits with tenures of 3 or more years at a fixed hedge cost of 3.5% a year until November 30.
Banks are raising these deposits from NRIs at Libor/swap rate of +400 basis points, which works out to a cost of mobilising FCNRB deposits at about 8.5% and with lending at 11%, it will enable banks to enjoy a 250 basis point spread as these deposits will not qualify for CRR or SLR status for now, BofA-Merrill says.
Separately, Morgan Stanley estimates that the measure could raise an additional $5-$10 billion from NRIs.
