The **Reserve Bank of India's recent measures are likely to help India attract USD 40-50 billion in inflows in FY27, according to a new report by Motilal Oswal Financial Services. This represents a significant increase from earlier market participant estimates of $15-20 billion for the concessional forex swap facility. India Ratings and Research (Ind-Ra) expects the arrangement to generate sizeable inflows, potentially in the range of $60-70 billion, providing a meaningful buffer to the rupee while easing broader funding pressures within the financial system. The RBI's February and June 2026 measures should be viewed as a coordinated attempt to stabilise the rupee, deepen the domestic debt market, attract more stable foreign capital and reduce friction for external funding, as stated in the Ecowrap Report from SBI's Economic Research Department. Any inflows would provide a timely boost, with local shares having already seen outflows of almost $30 billion this year and India projected to post a balance of payments deficit for a record third year. However, as noted by Business Standard, recent government and RBI measures to attract capital inflows may stabilise the rupee temporarily, but are unlikely to eliminate deeper risks. Unlike the 2013 taper tantrum, India is now confronting sustained foreign investor outflows driven by adverse global conditions, including high US yields, trade tensions, and uncertainty over tariffs.
The Reserve Bank of India operationalised its concessional forex swap facility for overseas loans on Monday, offering significant benefits to public sector undertakings. According to reports from Business Standard, the facility provides ECBs with an average maturity of three years and above by public sector undertakings with a separate swap facility. Swaps will be undertaken at a fixed rate of 1.5 per cent per annum, compounded semi-annually, which is around 1.3 percentage points below market rates. The facility will remain open until January 15, 2027, for eligible ECB drawdowns. To arrest the depreciation of the rupee against the USD, the RBI has introduced a US dollar-rupee forex swap facility for fresh FCNR (B) deposits, mobilised for a minimum tenor of three years and a maximum tenor of five years. This facility comes into effect on Monday and will remain open up to October 16, 2026. On Friday, the RBI unveiled steps to attract dollar inflows, including fully subsidising hedging costs on foreign currency deposits raised from non-resident Indians, with the subsidy covering deposits with maturities of three to five years raised until September 30. Banks have started announcing sharp rate increases to lure foreign funds, offering a rate of as high as 7.1 per cent on five-year deposits. According to Motilal Oswal Financial Services, banks could benefit from a 200-250 basis point reduction in borrowing costs through the ECB route under the concessional swap framework, which is expected to support credit growth and improve funding efficiency.
Against this backdrop of robust inflows, the currency is likely to recover to the sub ₹95/$ level before appreciating close to ₹90/$, and eventually average around ₹93.10 in FY27, according to India Ratings and Research. The dollar/rupee could strengthen towards the 93-94 range in the near term as inflows pick up pace, as estimated by Motilal Oswal Financial Services. The currency movement would track the evolving trajectory of inflation, interest rates, and flows, with the ongoing West Asia conflict pushing up energy prices and widening the trade deficit. The rupee has weakened 6 per cent this year against the dollar and remains close to a record low. Large capital outflows have also led to a weaker currency, adding to the depreciation cycle. The gap between five- and 10-year yields has widened to a one-year high of 40 basis points, more than double its pre-policy level, with the five-year yield falling more sharply than the 10-year. FCNR(B)-linked funding offers banks a spread advantage of around 60-65 basis points over conventional wholesale deposits, due to exemptions from CRR and SLR requirements, according to Motilal Oswal Financial Services. However, as Business Standard notes, the greater threat comes from oil prices. If the Iran conflict persists and crude prices surge sharply, India's current account deficit could widen further, intensifying pressure on the rupee.
The estimated USD 40-50 billion inflows will ensure that the deposit growth for FY27 for the banking system could jump to around 14.5-15 per cent against a potential credit growth of 16 per cent, according to the SBI Research report. This will mean that the credit-deposit gap after adjusting for regulatory dispensation will shrink by around ₹1 lakh crore and ensure that the term structure of interest rates declines further. The report notes that in FY14, the FCNR (B) fund mobilisation deposit and credit growth were almost identical, indicating the effectiveness of this strategy. In FY26, inflows through ECBs and foreign currency convertible bonds (FCCBs) declined 30 per cent to $42.9 billion from $61.2 billion in FY25, reflecting favourable domestic interest rates following monetary policy easing. FCNR(B) deposits currently account for about 1.2% of total banking system deposits, indicating significant headroom for growth, according to Motilal Oswal Financial Services. Lenders with strong retail franchises and established overseas networks are likely to capture a larger share of incremental inflows, with the structure of the scheme benefiting both depositors and banks, encouraging wider participation. "We expect incremental inflows to the tune of around $5 billion in the immediate future in response to these announcements, aided by tax exemptions and expectations of improved performance of INR vs other Asian currencies," said Parul Mittal Sinha, head-markets, India and South Asia at Standard Chartered Bank.
The RBI has revived the Foreign Currency Non-Resident Bank (FCNR(B)) route to attract overseas Indian investments, with SBI Research estimating potential inflows of ₹5.2-6.2 lakh crore in FY27. Banks are expected to offer attractive interest rates of 5.5-6% on FCNR(B) deposits, higher than current three-year US Treasury yields of around 4.2%. As of March 2026, outstanding FCNR(B) deposits stood at $33.8 billion, with SBI Research projecting ₹3.8-4.3 lakh crore in new deposits. During the previous FCNR(B) mobilisation in 2013, India attracted around $24.5 billion in just three months, demonstrating the effectiveness of this strategy. The facility covers eligible ECBs raised by PSUs and overseas foreign currency borrowings (OFCBs) by banks. SBI economists expect around $40-45 billion to come in through the FCNR(B) deposits route, with the current FCNR(B) rate at 3.35 per cent for three years and the cost of hedging at 3.5 per cent. Some Indian lenders have asked the central bank if they can use a portion of deposits collected from non-resident Indians as collateral, potentially allowing customers to leverage their deposits and scale up amounts under the plan, as reported by Business Standard. Motilal Oswal Financial Services noted that banks have already started increasing FCNR(B) deposit rates across key maturities, improving the attractiveness of these instruments for non-resident Indians.
Besides the RBI measures, the government, on June 8, introduced a series of reforms to increase Foreign Portfolio Investor (FPI) participation in the government securities (G-Secs) market. Key measures included tax exemptions on interest income, long-term capital gains (LTCG) and short-term capital gains (STCG), expansion of specified securities under the Fully Accessible Route (FAR), and streamlined investment norms. The government hopes that these steps will help G-Secs get included in the Bloomberg Global Aggregate Bond Index, which would not only deepen the bond market but also increase the inflow of passive funds. The overall balance of payment would be in the range of USD 5-10 billion surplus for FY27, according to the Ecowrap Report, representing a significant improvement from the previous estimate of a deficit of $65-70 billion. The current account deficit would be in the range of 1.5-1.7 per cent of GDP, substantially better than earlier projections. The RBI has also allowed other forms of leverage that could augment inflows, details of a circular showed Monday, with other measures including reduced taxes for foreigners buying Indian bonds and higher limits for equity purchases. Motilal Oswal Financial Services said the RBI's initiatives are likely to support credit growth, strengthen bank balance sheets and improve system liquidity, creating a supportive backdrop for the banking sector in the coming quarters. Higher foreign currency inflows and stronger reserves are expected to support rupee stability and improve investor confidence, with the trajectory of oil prices and global interest rates remaining key in shaping how effectively these measures translate into sustained external stability.
