Depositors await clarity on leverage

MUMBAI: Reserve Bank of India’s sweeping overhaul of FCNR(B) deposit rules has triggered intense interest among non-resident investors, but a lack of clarity on leveraged structures has left banks and high-net-worth individuals in a wait-and-watch mode even as flyers on social media promise 13.83% return to NRIs.The maths behind the 13.83% projection is that the depositor will get up to 6% return on deposits while they can use their initial deposits as a security and borrow money at 5.4%. Factoring in the costs of availing a loan, the depositor can repeat the process nine times (i.e depositing $1 million and borrowing up to $9 million)SBI, did not respond to query on comments on Sunday. RBI is yet to come out with a FAQ (frequently asked questions) on the scheme although it has asked banks to provide details of daily collections.

The concern among some bankers is that with West Asia ceasefire being announced and big ticket ECBs from PSUs on the cards, there may not be a need to go overboard with deposit mobilisations.

The central bank recently introduced a series of measures aimed at attracting large foreign currency inflows and shoring up reserves, effectively removing longstanding constraints that had kept FCNR(B) returns modest.Under a forex swap facility announced on June 8, RBI offered a dollar-rupee par-swap window that absorbs hedging costs for fresh deposits of three to five years, eliminating the typical 3–3.5% annual forward premium burden on banks.

In parallel, RBI exempted such deposits from cash reserve ratio and statutory liquidity ratio requirements through its Second Amendment Directions, freeing up bank balance sheets for deployment.This was followed by a June 18 notification scrapping the interest rate ceiling for these tenors, allowing banks to price FCNR(B) deposits without the earlier cap linked to benchmark swap rates plus a spread, with the relaxation valid until Sept 30, 2026.