FCNR(B) scheme could yield Rs 5.5 trillion notional profit for banks, RBI: SBI Research
A report by SBI Research indicates that the FCNR(B) deposit scheme could generate a notional profit of Rs 5.5 trillion for banks and the Reserve Bank of India. This analysis contradicts earlier estimations that suggested significant financial losses from the scheme. The report highlights that the funds mobilized through FCNR(B) could support additional bank credit and yield substantial interest income, while hedging costs are deemed manageable. It also projects increased profitability for the RBI from this liquidity infusion.
What this means
This report offers a more optimistic view on the financial implications of FCNR(B) deposits, suggesting they are a net positive for the banking system and the central bank. For banks, it implies that these deposits can be a stable and profitable source of funding for credit expansion. For the RBI, it affirms the strategic value of such instruments in managing liquidity and supporting economic activity.
Most affected: Bank profitability, RBI balance sheet, Liquidity management
Key takeaway: Consider FCNR(B) deposits as a viable and profitable funding source for sustained credit growth, supported by positive research findings.
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