MUFG lifts RBI forex inflow forecast to $87 bn as FCNR(B) flows surge

Japanese lender MUFG has raised its estimate of inflows under the RBI's concessional forex measures to $87 billion, citing robust FCNR(B) deposit mobilisation

Following robust mobilisation in the first two months after the Reserve Bank of India (RBI) operationalised its concessional forex swap window, under which it subsidises banks' hedging costs on fresh FCNR(B) deposits, overseas foreign currency borrowings (OFCBs) and external commercial borrowings (ECBs), Japan's MUFG Bank has sharply raised its estimate of inflows under the RBI's forex measures to close to $90 billion from $60 billion earlier. The bank expects the bulk of these inflows to materialise in the September quarter.

 

"We now raise our forecast for inflows from RBI's FX measures to $87 billion from $60 billion previously, with the bulk of the flows concentrated in the September quarter. This does not assume a possible inclusion of Indian government bonds in the Bloomberg Global Aggregate Index, for which there was a recent announcement of a delay in the decision," MUFG Bank said in a note.

   

As of July 31, banks had mobilised nearly $41 billion under the concessional swap window, according to RBI data. Of the total inflows, $36.7 billion came through FCNR(B) deposits, $2.57 billion via overseas foreign currency borrowings (OFCBs), and $1.5 billion through external commercial borrowings (ECBs).

 

Previously, SBI Research said FCNR(B) deposits could reach $65-70 billion by the close of the scheme on September 30, revising its earlier estimate of $40-45 billion. Including ECB and OFCB inflows, the total is expected to reach $80-85 billion, it said.

 

On Wednesday, RBI Governor Sanjay Malhotra said the central bank was not considering prematurely closing its concessional forex swap window and expected healthy inflows to continue after robust mobilisation in the first two months since the facility was operationalised.

 

"We have got robust flows. We do hope to get healthy flows going forward. But there is no proposal under consideration to close the scheme prematurely," Malhotra said, adding that, as of now, FCNR(B) mobilisation has ticked all the boxes for RBI.

 

The scheme became effective on June 8 and will remain in force until September 30, 2026.

 

According to government data, net inflows in FCNR(B) deposits as of July 30 stood at $28 billion, with foreign banks mobilising $8.37 billion, private sector banks garnering $10.73 billion, and public sector banks mobilising $8.84 billion. Among individual lenders, HSBC emerged as the largest mobiliser, with $6.14 billion. State Bank of India followed with $4.12 billion, while ICICI Bank mobilised $3.70 billion.

 

Meanwhile, the RBI Governor said that, due to these inflows, the banking system's liquidity surplus could peak around September before being absorbed through higher currency in circulation, rising reserve requirements as deposits grow, and the maturity of foreign exchange forward contracts.