MUMBAI: To offset multi-billion dollar outflows due to sell-offs and record trade losses by foreign portfolio investors (FPIs), reserve Bank of India Steps have been taken to boost credit flow. This step has been taken amidst the record depreciation of rupee. However, on Wednesday, the rupee closed at 79.30 with a gain of 7 paise.
As a temporary measure to attract capital, RBI has allowed banks to offer higher returns on foreign currency deposits on which they will not have to keep any reserves. It has also sought to boost credit portfolio flows by widening the basket of securities available to FPIs. Rules governing external commercial borrowing for corporates have been eased, doubling the limit under the automatic route to $1.5 billion and raising the cost of borrowing by one percentage point.
NRIs will get higher returns for bringing foreign exchange into India in FCNR(B) and NRE deposits as the rate limit for fresh deposits has been removed. This exemption will be available for a 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 deposit money in foreign currency deposits at higher rates.
Shyam Srinivasan, CEO, said, “This will be a turbocharger for banks like us, with a 22.5% stake in the personal remittance sector. The July-December window, which usually experiences maximum dispatches from a few diaspora, will definitely be strong.” federal bank, which receives a substantial portion of deposits from non-residents. Economist Rahul Bajoria barclays“The measures are good, but it may take some time to have an effect as the pressure on the rupee is mainly from the current account deficit and not just capital outflow,” it said.
As a temporary measure to attract capital, RBI has allowed banks to offer higher returns on foreign currency deposits on which they will not have to keep any reserves. It has also sought to boost credit portfolio flows by widening the basket of securities available to FPIs. Rules governing external commercial borrowing for corporates have been eased, doubling the limit under the automatic route to $1.5 billion and raising the cost of borrowing by one percentage point.
NRIs will get higher returns for bringing foreign exchange into India in FCNR(B) and NRE deposits as the rate limit for fresh deposits has been removed. This exemption will be available for a 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 deposit money in foreign currency deposits at higher rates.
Shyam Srinivasan, CEO, said, “This will be a turbocharger for banks like us, with a 22.5% stake in the personal remittance sector. The July-December window, which usually experiences maximum dispatches from a few diaspora, will definitely be strong.” federal bank, which receives a substantial portion of deposits from non-residents. Economist Rahul Bajoria barclays“The measures are good, but it may take some time to have an effect as the pressure on the rupee is mainly from the current account deficit and not just capital outflow,” it said.