NRIs Could Earn $ Return Of 17-27 Per Cent On FCNR (B) Scheme

Mumbai: The Reserve Bank of India’s (RBI) has launched a swap facility for fresh three- to five-year Foreign Currency Non-Resident (Bank), or FCNR(B) deposits that could help Non Resident Indians (NRIs) earn

17-27 per cent return annually over three to five years.

According to the contours of the US Dollar-Rupee Forex Swap Facility for fresh FCNR (B) deposit scheme announced by the RBI on Monday, banks may price deposits as per internal policy, within RBI’s prescribed ceiling. The hedging cost for the dollar deposits would be borne by the RBI. The scheme covers both fresh mobilisation and rollover of maturing FCNR(B) deposits. The money can be parked for three years to five years.

The RBI is open to banks providing SBLC (Standby Letter of Credit) to lenders of deposit customers, which can help them leverage their capital to enhance returns.

So assuming an NRI has $ one million in cash and he borrows $ 7 million overseas at a lower rate. On a FCNR B deposit yield in India at 6.5 per cent, he earns an interest income of $ 52,000. Assuming his borrowing cost was 5 per cent, he paid an interest cost of $ 35000 on the borrowed funds but still earns a net interest income of $ 17,000 or an Internal Rate of Return of 17 per cent. If he increases the leverage to $ 10 million and gets a lower borrowing rate of 4.5 per cent, his return on his equity can rise to as high as 27 percent, showed a Jefferies analysts calculation.

“We estimate that with 7-10 times leverage and spread of 1.5-2 percent, customers can generate 17-27 per cent $-Internal Rate of Return annually over 3-5 years. Under the 2013 scheme, Indian banks mobilised US$34bn through FCNR-B and ECBs that was 12 per cent of forex reserves and 3 per cent of domestic deposits," said a Jefferies report.

"With current forex reserves of $682 billion, substantial flows can support domestic liquidity, forex reserves and exchange rate. We would expect that India could see inflows of $50-70 billion,” added the report.

Banks can mobilise deposits between June 8 and September 30, 2026 under the scheme. Deposits raised under the scheme will carry a one-year lock-in, and swaps undertaken by banks cannot be cancelled. The swap window will remain open till October 16, 2026.

Under the FCNR(B) swap facility, banks that raise eligible foreign-currency deposits can sell those dollars to the RBI and receive rupees in return. At maturity, the transaction is reversed at the agreed terms.