“We are pencilling in a large balance of payment (BOP) deficit of around $68 billion in FY27. Unless the global backdrop changes to lower oil prices, this is the gap that will likely need to be plugged via the forex deposit scheme being considered,” Nomura’s Sonal Varma said in a report.
After a 6% retreat in the currency in 2026 and the worst fiscal-year fall in 14 years in FY26, the rupee’s performance has often been cited as the cause for persistent exits by overseas funds. Recent media reports suggest the central bank might start a dedicated program to draw dollar inflows, although Mint Road has not confirmed the likelihood of any such program.
Nomura said that such programs need to account for higher dollar deposit rates globally compared to domestic deposit costs. Nomura argued that the Reserve Bank of India (RBI) may need to provide higher subsidies to make such a scheme attractive for banks.
According to a Reuters report on May 4, two options are being explored by the RBI — reviving a scheme similar to the 2013 FCNR(B) scheme and eliminating the 5% withholding tax on overseas government bond investors to encourage inflows.
A Bloomberg report the next day suggested the RBI is discussing an option similar to the India Millennium Deposits (IMD) in 2000, under which State Bank of India (SBI) had issued foreign-currency bonds.
The global interest rates are much higher today than in 2013, when US policy rates were near zero.
‘Sweeten the Deal’
“This may mean that the structure of any new scheme being considered will need to be modified to account for higher dollar deposit rates globally and lower domestic deposit costs. This may require a higher subsidy from the RBI to make the scheme attractive for banks,” Varma said.
Bank of Baroda chief economist Madan Sabnavis differed with the view on the need for special schemes to attract dollars. “If remittances and NRI deposits are not rising, the expat population has a problem and will not be able to invest in such bonds even if issued,” he said.
However, he suggested that if India at all issues bonds like IMD, the yield would have to be higher than local deposit rates in the US.
“For them to be feasible for Indian banks, the rate should still be lower than domestic deposits. Otherwise, it may not be viable especially as exchange risk is taken on by the banks,” he said, adding that the exchange risk is something where the government or RBI has to take on.
Earlier, India had come out with three specific schemes to attract dollar-denominated investments — the Resurgent India Bonds (1998), the India Millennium Deposit (2000) and the FCNR(B) swap window (2013).
“Authorities have used a mix of monetary policy, regulatory tweaks and special financial instruments over the years to attract dollar inflows and stabilize the rupee.. Notably, compared to 2013, offering concessional swaps at this juncture might be an expensive proposition given higher US rates and accordingly step-up in hedging costs,” said DBS Bank senior economist Radhika Rao.
The broad concept behind foreign currency deposit mobilisation schemes is to reduce currency depreciation pressures by offering incentives to the large Indian diaspora abroad on their foreign currency deposits into India.
Historically, the RBI had offered favourable terms to domestic banks to hedge this foreign exchange risk.
