MUMBAI: To make up for the multi-billion-dollar outflow due to selling by foreign portfolio investors (FPIs) and a record trade deficit, the RBI has taken steps to boost debt inflows. The move comes amid the rupee sinking to record lows of late. Though on Wednesday, the rupee managed to close 7 paise higher at 79.30.
As a temporary measure to attract capital, the RBI has allowed banks to give higher returns on foreign currency deposits on which they will not have to maintain any reserves. It has also sought to boost debt portfolio inflows by widening the basket of securities available to FPIs. Rules governing external commercial borrowing for corporates have been relaxed, with the limit under the automatic route being doubled to $1.5 billion and the cap on borrowing costs raised by one percentage point.
Non-resident Indians will get high returns for bringing foreign exchange into India into FCNR(B), and NRE deposits as the cap on rates have been removed for fresh deposits. This relaxation will be available for the period up to October 31, 2022. FCNR(B) are foreign currency non-resident deposits ( denominated in foreign currency), while NRE deposits are non-resident external deposits.
In the past, such deposits have attracted billions when rates were raised during capital outflows as foreign banks are happy to extend personal loans to NRIs who then park the money in foreign currency deposits at a higher rate.
"This would be a turbocharger for banks like us with a 22.5% share in the individual remittance space. The July-December window, which generally experiences maximum remittance from certain diasporas, would certainly get bolstered," said Shyam Srinivasan, CEO of Federal Bank NSE 1.57 %, which gets a big chunk of deposits from non-residents. Rahul Bajoria, an economist with Barclays, said, "The measures are good, but may take some time to have an ..
Source Name:-Economic Times