Banks May Reap ₹5 Lakh Crore Notional Profit From India’s Dollar Deposit Scheme: Report

New Delhi: India’s FCNR(B) dollar deposit scheme could deliver a notional profit of ₹5 lakh crore to banks over five years, according to an SBI Research report.

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The scheme mobilised $127 billion in less than three months. SBI Research estimated that the Reserve Bank of India could earn another ₹50,000 crore from deploying the dollar inflows overseas.

Dollar Deposits Offer Competitive Funding

The report said the scheme’s cost must be assessed against elevated borrowing rates in global and domestic markets.

FCNR(B) deposits carrying interest rates of around 6% to 6.5% remain attractive when dollar borrowing costs for AAA-rated companies are hovering near 7.5% to 8%.

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The inflows could also reduce banks’ dependence on expensive bulk deposits, which account for nearly 38% of local market borrowing. This may ease pressure on wholesale deposit and certificate of deposit rates.

SBI Rejects Double-Counting Argument

SBI Research rejected claims that banks could face a ₹5 lakh crore loss after combining hedging expenses with rupee depreciation.

It said currency depreciation should not be counted separately once liabilities are fully hedged through counterparties. With back-to-back hedging, the direction of the rupee at maturity becomes irrelevant.

Liquidity Could Support Credit Growth

The report also dismissed concerns that the sharp dollar inflows would create unmanageable liquidity.

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It said festive demand, sanctioned loans, credit disbursals, advance-tax payments and GST outflows could absorb part of the liquidity while helping banks manage credit demand.

RBI May Earn ₹50,000 Crore

SBI Research estimated that investing $100 billion overseas at a 4% yield for five years could generate $20 billion for the RBI.

After an estimated hedging outgo of $15 billion, the central bank could retain about $5 billion, equivalent to nearly ₹50,000 crore.

The report concluded that the FCNR(B) scheme could strengthen banking liquidity while generating substantial notional gains for banks and the RBI.

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