India's initiatives to draw in overseas capital have successfully brought in almost $40 billion since June, according to Reserve Bank of India Governor Sanjay Malhotra. This influx is aimed at bolstering the country's external buffers and mitigating the depreciation of the rupee. A significant portion of this capital, approximately $32 billion, has been mobilized by banks primarily through FCNR(B) deposits. Additionally, overseas investors have committed over $7 billion to government securities since the RBI introduced these measures in June.
While the inflows have been substantial, the immediate impact on the rupee's strength and banking system liquidity has been muted. The rupee's gains have been less pronounced compared to a similar initiative in 2013, with a 3% rebound from its May record low, which has since faded. The RBI's foreign currency assets have seen a more modest increase of $7.6 billion as of July 17, compared to the $32 billion raised through deposit schemes, potentially due to reporting lags. Analysts note that continued foreign exchange intervention by the RBI, management of its short forward positions, and an uptick in currency in circulation have limited the direct impact on banking liquidity. The central bank has also been injecting liquidity into the banking system through repo operations.
Despite the muted impact on the rupee and banking liquidity, borrowing costs for banks have seen some relief. The rate on one-year certificates of deposit has fallen to about 7% from a more than two-year high of 7.96% in May. The RBI's current policy repo rate is considered appropriate given the prevailing growth-inflation dynamics, and the central bank maintains that the rupee is not undervalued. The total inflows are expected to contribute significantly to India's balance of payments, with some estimates suggesting combined inflows from FCNR(B), OFCB, and ECB routes could reach $80-$85 billion by the time the schemes close.
