‘Prudent’ Bankers back RBI’s move to end FCNR(B) swap window early

Bankers have praised the Reserve Bank of India (RBI) for its decision to terminate the FCNR(B) swap window earlier than scheduled. The facility, introduced on June 5 and operational from June 8, facilitated Indian banks in accumulating a substantial $52.3 billion as of August 13, with an additional $20 billion anticipated by month's end.

The RBI terminated the swap on August 31, one month ahead of the planned September 30 deadline. Bankers view this move as a judicious one, acknowledging the liability nature of FCNR(B) deposits. One executive disclosed that their internal target of $2 billion has been achieved, while others anticipated a slight shortfall. The RBI's decision to end the swap, despite a high response, may be driven by the potential hedging costs.

Although the RBI covers the hedging expenses, analysts estimate these costs could amount to around 15% of the funds raised. Even with a projected $70 billion raised, the cost would only be about $10.5 billion, a relatively minor figure against India's substantial foreign exchange reserves.