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

India's FCNR(B) dollar deposit scheme could generate a notional profit of ₹5 lakh crore for banks over a five-year period, according to an SBI Research report. The scheme attracted $127 billion within three months. The Reserve Bank of India might earn an additional ₹50,000 crore by deploying the dollar inflows overseas. The report states that the scheme's cost must be compared to higher borrowing rates in both global and domestic markets.

FCNR(B) deposits with interest rates of 6% to 6.5% are competitive when compared to AAA-rated companies' dollar borrowing costs of 7.5% to 8%. The inflows can also lessen banks' reliance on expensive bulk deposits, which make up nearly 38% of local market borrowing, potentially alleviating pressure on wholesale deposit and certificate of deposit rates.

SBI Research rejects claims of a ₹5 lakh crore loss, citing that currency depreciation should not be counted separately once liabilities are hedged. The report also dismisses concerns about unmanageable liquidity, attributing it to factors like festive demand, sanctioned loans, credit disbursals, advance-tax payments, and GST outflows.

SBI Research estimates that investing $100 billion overseas at a 4% yield for five years could yield $20 billion for the RBI, resulting in a net gain of about ₹50,000 crore after hedging expenses.