The Reserve Bank of India's (RBI) move, announced by new Governor Raghuram Rajan, to allow a special window to swap foreign currency non-resident (FCNR) dollar funds for boosting foreign fund inflows is likely to fetch around USD 10 billion, say experts. The newly-appointed Governor Raghuram Rajan had said yesterday that RBI will offer a window to banks to swap the fresh FCNR-B dollar funds, mobilised for a minimum tenor of three years and over, at a fixed rate of 3.5 per cent per annum.
According to Bank of America Merrill Lynch (BofA-ML), "the move (FCNR-B) should fetch USD 8-10 billion", adding that the move would help in shifting Indian rupee risks away from non-resident Indians (NRIs) at a time of extreme volatility.
Echoing sentiments, Morgan Stanley said the "measures announced by RBI are somewhat similar in nature and can help augment capital inflows and cushion the funding pressures to some extent in the near term."
The Indian rupee, which had touched an all-time intra-day low of 68.85 to a dollar on August 28, today strengthened by hefty 138 paise to trade at 65.69 against the dollar at the Interbank Foreign Exchange market after fresh measures by the RBI to stem the currency's slide.
BofA-ML further said the FCNRB deposit-cum-swap facility is expected to stabilise Indian rupee in absence of a major FX shock.
Earlier, similar schemes like the 1998 Resurgent India Bonds and the 2001 India Millennium Deposits, each of which had raised USD 5 billion, had been extremely effective in this regard, it added.
Morgan Stanley noted that significant currency pressures bring a need to raise NRI dollar deposits through a special scheme under which the government bears part of forex risks.
"The announcement by the RBI will help in part to augment the NRI dollar deposits. Currently, USD 15 billion is outstanding under the FCNR deposits, and we believe with this measure, an additional USD 5-10 billion could be raised," Morgan Stanley said.
Experts however believe that the roll back of the July 15 tightening measures by the RBI would be possible only on two counts, if the Fed defers tapering or the markets decide that the tapering is priced in.
According to BofA-ML, the