The Reserve Bank of India (RBI) on Friday announced a series of measures aimed at attracting foreign capital and strengthening the country’s foreign currency reserves, in a move that market participants believe could help ease pressure on the rupee and stem persistent foreign portfolio investor (FPI) outflows.
Among the key initiatives unveiled by RBI governor Sanjay Malhotra is a facility under which the central bank will bear the entire hedging cost on fresh Foreign Currency Non-Resident (Bank) -FCNR(B)- deposits of three-to-five-year maturity mobilised by banks until September 30, 2026.
The central bank also announced a concessional foreign exchange swap window for public sector undertakings raising funds through external commercial borrowings (ECBs) and the facility will remain available until September 30, 2026.
In another significant move, the RBI has proposed to enhance investment access for non-resident investors. Under the existing Portfolio Investment Scheme (PIS), an individual NRI or Overseas Citizen of India (OCI) can invest up to 5 per cent of the paid-up equity capital of a listed Indian company, while aggregate holdings by all such investors are capped at 10 per cent.
The central bank has also decided to extend the same facility to all individual Persons Resident Outside India (PROIs), effectively placing them on a par with NRIs and OCIs for investments in listed equity instruments without requiring registration with the Securities and Exchange Board of India (Sebi).
Additionally, the RBI expanded the list of government securities eligible under the Fully Accessible Route (FAR) by including all new issuances of 15-year, 30-year and 40-year government bonds, providing foreign investors with a broader range of sovereign debt instruments.
“We are not targeting any particular amount. But we do expect healthy flows from ECB and other measures that we have announced today,” Malhotra said.
Market experts described the package as the most significant effort to attract dollar inflows since 2013.
“By incentivising PSUs and large corporates to tap overseas markets through improved ECB conditions, the RBI is easing domestic supply pressure and, in turn, organically pulling yields lower,” said Dhiraj Relli, MD & CEO, HDFC Securities.
“The Centre’s simultaneous removal of taxes on foreign investment in G-Secs is the force multiplier, as it addresses the single biggest friction flagged by global bond funds and index providers,” said Anindya Banerjee, head of commodity and currency research at Kotak Securities. He added that the rupee could appreciate to 94-94.5 per dollar in the near term if crude oil prices remain below $100 a barrel.
Vivek Iyer, partner and financial services risk leader at Grant Thornton Bharat, said the measures could result in increased capital inflows within the next two months.
Data compiled by SBI Research shows that RBI’s measures could result in potential capital flows of at least $40 billion and could pull back the rupee towards 92-23 level.